By Stephen Johnson, Economics Reporter For Daily Mail Australia
20:57 09 Jul 2023, updated 21:12 09 Jul 2023
- Andy Lock saved money by switching banks
- Westpac offered better rate than CommBank
A borrower paying off a unit has revealed how he saved thousands of dollars a year in mortgage repayments – even before the rate rises – simply by switching banks.
Engineering researcher Andy Lock was coming off a five-year discounted rate in April 2022 when the Commonwealth Bank offered him a 3.03 per cent variable home loan rate.
That was back when the Reserve Bank cash rate was still at a record-low of 0.1 per cent.
But by switching to Westpac and refinancing, he was able to get a 2.3 per cent rate plus a $3,000 cash bonus.
Mr Lock, 31, who is now based in Brisbane for work but paying off a Hobart unit he is renting out, said that 0.7 percentage point difference gave him a buffer to deal with the Reserve Bank’s 12 rate rises since May 2022.
‘I’m always keen to find the most competitive offering,’ he told Daily Mail Australia.
‘I’m not a “rentvestor” by design – I bought my place, I lived in it in Tassie and now I’ve moved, this is just the circumstance I find myself in.’
Three of Australia’s Big Four banks have now relaxed their refinancing rules with NAB joining Westpac and the Commonwealth Bank in being more lenient.
Only ANZ is yet to announce more liberal rules.
Like many borrowers, the Tasmanian now living in Queensland had a 20 per cent deposit when he bought a two-bedroom unit in the Hobart suburb of West Moonah in 2016 for $278,000.
The Commonwealth Bank’s offer of 3.03 per cent would have meant paying $942 a month in repayments but by switching to Westpac, that was reduced to $856.
That equated to a saving of $86 a month or $1,032 a year.
For a borrower with an average, $600,000 mortgage, that would have meant the difference between paying $2,540 a month or $2,309.
That $231 monthly difference would add up to $2,772 over a year.
Since then, the Reserve Bank has raised rates 12 times to an 11-year high of 4.1 per cent, pausing in July for the first time since April.
The four percentage points of increase since May 2022 has marked the most aggressive pace of monetary policy tightening since 1989, with inflation still high.
The Commonwealth Bank is now charging 6.44 per cent for a new borrower with a 20 per cent deposit compared with Westpac’s discount variable rate of 5.99 per cent.
For a borrower with a $600,000 mortgage that would mean the $175 difference between paying $3,769 a month or $3,594 a month – adding up to $2,100 a year.
Mr Lock’s unit cost $278,000 in 2016 but now his suburb has a median apartment price of $461,890, CoreLogic data showed.
This means borrowers like him have more power to bargain for a better mortgage rate when they refinanced.
‘I’m not an expert in finance but I do imagine that a lot of people who had houses for a few years, have probably gone up in value quite a lot,’ he said.
‘It’s not your initial deposit, it’s your current equity.’
An InfoChoice survey of 1,000 borrowers found millennials, aged 27 to 42, were the ones most likely to refinance, with 78 per cent of them considering the move compared with 69 per cent for all borrowers.
Financial comparison website InfoChoice’s money analyst Dominic Beattie said a ‘refinancing tsunami’ was set to intensify, with the Reserve Bank estimating that 880,000 fixed rate mortgages will expire in 2023.
‘With thousands of pandemic-era fixed-rate mortgages yet to experience the dreaded rollover to the brutal reality of today’s interest rates, there’s a lot more to come from this wave of refinancing,’ he said.
The Australian Prudential Regulation Authority, the banking regulator, requires the banks to assess a borrower’s ability to cope with a three percentage point increase in variable mortgage rates.
While the rules remain strict for borrowers taking on new debt, Westpac, the Commonwealth Bank and now NAB have relaxed the rules for those seeking to refinance.
National Australia Bank is relaxing its serviceability rules from July 21 for borrowers with a minimum 20 per cent mortgage deposit.
Those with a good record of meeting monthly repayments will be allowed to refinance by extending their loan term or borrow one per cent more to cover their refinancing costs.
RateCity research director Sally Tindall said this would stop borrowers being trapped in a mortgage prison, especially if they were coming off a 1.92 per cent fixed rate and faced going on to a higher ‘revert’ variable rate of 7.68 per cent should rates rise again.
‘NAB has followed in Westpac and CBA’s footsteps by unlocking the door for select mortgage prisoners,’ she said.
‘Helping borrowers in financial stress on to lower rates can often be the difference between them keeping on top of their repayments and defaulting on their loan.’
