Loan swap pays off for families

COMPETITION among banks is resulting in families cutting tens of thousands off two-year mortgage costs and being paid as much as $5000 cashback by lenders to do so.

Homeowners are racking up as much as $14,200 refinancing to the lowest two-year fixed rate loan with cashback offers (ING), but even banks not offering cash back are delivering savings of as much as $12,505 on $500,000 loan balances now (Greater Bank), according to analysis by RateCity.com.au.

As many as 25 lenders, including ANZ, the Commonwealth, NAB and Westpac, are so stretched by competition they are running with twin sweeteners – cash back and rates below 2 per cent – to tempt homeowners.

Bank of Queensland, Westpac and HSBC were ahead on variable rates when compared with the lowest rate on the market without cashbacks, according to RateCity analysis, with Westpac’s 1.99 per cent with $3000 cashback offer delivering over $13,700 in savings over two years.

The RateCity calculations were based on an owner-occupier, paying principal and interest with $500,000 owing and 25 years remaining, switching to a cashback offer.

Cutthroat competition saw $151bn in refinancing nationwide in the year to June, according to the Australian Bureau of Statistics.

The latest ABS monthly figures – for July 2021 – saw a record $17.22bn of home loans refinanced during the month, almost double that of two years ago, with the proportion of fixed-rate loans surging from 15.5 per cent in July 2019 to 47.1 per cent in July 2021.

RateCity research director Sally Tindall said a low ongoing rate used to trump a one-off perk such as a cashback but banks were now increasingly offering both – low rates and cashback deals.

“The recent spike in refinancing is likely to be driven, at least in part, by a fear of missing out on a good rate,” Ms Tindall said.

“We expect this surge in refinancing to continue as mortgage holders in lockdown use this time at home to give their finances a spring clean.”

She said RBA figures showed the average owner-occupier on a variable rate loan was paying 3.07 per cent at a time when there were 181 mortgage rates on offer under 2 per cent.

“If your mortgage rate starts with a ‘3’, it could be time to jump on the refinancing bandwagon or at least pick up the phone and haggle with your current lender,” Ms Tindall said.