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Record numbers are trying to refinance mortgages. They are also nervous about the rate rise, even though the Reserve Bank is maintaining rates at current levels.
According to the Australian Bureau of Statistics (ABS), the value of refinancing hit a record in May. Within one month, there were $14.88 trillion in home loans that were refinanced.
This is 41% more than March 2020 before COVID-19 took hold of America. It is 76% higher than March 2019, which was two years ago, right before the most recent round of rate cuts.
As last year’s peak lockdown, homeowners are trying to cut costs and carefully examine their budgets.
Banks have increased their five-year and four-year terms at a bargain price in recent weeks. Economists now consider a rate increase as soon as next year.
There are still 189 home loan rates below 2 percent.
According to Rate City dataThe following table shows that all four major banks have fixed rates of 2 years below 2 percent.
Westpac is currently four-bank with a fixed rate at 1.98 % for three year. This rate is unlikely to stay.
The lowest rate in Australia is currently 1.67 per cent – fixed for just one year.
Although some banks have increased their fixed rate for three years in recent weeks, 39 rates below two percentage points are still available.
Sean Walsh purchased his Sydney house 18 months ago. He was paying 3.2% to one of the big four banks.
He is currently attempting to switch to a fixed interest rate of 1.8% to save money each month and to secure a cash back payment by his new lender.
Mr Walsh stated that this was a great chance to take advantage of the current low interest rates.
James Algar, Mortgage Choice broker stated that switching is a smart choice.
“Don’t trust banks to do the right thing and tell your about lower rates. It’s not something they do. He stated that they are in it to make money.
Sally Tindall is Rate City’s research director. She said that refinancing can help people make thousands of dollars. Average owner-occupier pays 2.92 percent.
A $500,000 mortgage holder would see their monthly payments drop by $236. They could also save $13,679 over the 3-year term.
Ms Tindall explained how refinancing is at an all-time high for many reasons.
She stated that COVID was an alarming sign that people needed to make their money work harder for them. She added that the mortgage was the largest monthly expense for many families and the most expensive.
Rate City has seen huge spikes in refinancing in the past year.
Ms Tindall stated that rates are at record levels, but only for new customers or clients looking to fix them.
“The RBA data shows the average existing owner occupier is paying a rate of 2.92 per cent, while a new customer taking out a fixed rate loan of three years or less is paying on average 1.98 per cent – that’s a difference of 0.94 per cent.”
Over the past few months, dozens of lenders have increased their three-, four- and five-year home loan rates – including all big four banks – with more fixed rate hikes expected.
The RBA will likely raise rates earlier than 2024. CBA predicts the central bank will raise rates during the second half of next fiscal year.
Many people have been thinking about fixing their car but haven’t done it yet. They will likely rush for a lower rate as soon as they can.
Ms Tindall said fixing is not for everyone.
She stated that fixed rates come with many caveats such as caps on extra payments and inability to offset accounts.