The Reserve Bank (RBA) has just slugged borrowers with a 13th rate increase in the steepest hike-cycle since the 1990s, but there is a move that could cut five of those increases, and $516, from your repayments.
It’s time to refinance. If you haven’t done it yet, you need to ditch your old mortgage quickly and switch to a new type of competitive, quality one. (I’ll come back shortly to what I mean by ‘quality’ – because it’s vital.)
How to get a repayment reprieve
The potential $516 saving is based on a typical $600,000, 25-year mortgage and comes about if a home-loan holder moves from the soon-to-be official RBA discounted variable rate of 7.31 per cent, to the best-value alternative of 5.94 per cent. That’s an instant interest drop of 137 basis points – equivalent to more than five rate cuts - and would see repayments fall overnight to $3,844 from $4,360.
So, where can you get 5.94 percent? In several places.
The products saving borrowers’ budgets
Below, from Mozo, are the institutions offering the 'real' best deals - the quality ones. Now, these are quality for a very important reason: they all offer genuine offset accounts. Many smaller and online-only lenders only offer all-in-one, redraw-style loans, and duplicitously claim to carry offset accounts.
Read more from Nicole Pedersen-McKinnon:
The first problem of a redraw facility is that, in the fine print, it states that if you get into financial strife, a lender can stop your access to excess money (it’s held directly in your loan rather than in a separate, quarantined offset account). And some lenders have even recalculated loan balances and subsumed it into the loan. That is bound to happen if they go bust and sell your loan to another institution.
The other big danger with keeping savings in, or making extra repayments into, a 'fake' offset account is that these accounts do not qualify for the Financial Claims Scheme, the government-backed safety net for deposits of up to $250,000.
The below loans are instead quality loans - comparable to our largest institutions. The evidence is that they are all backed by authorised deposit-taking institutions (ADI). You can see that, even after the latest 25-basis-point increase is added – inevitably – to each, there should still be three lenders charging below 6 per cent.
Australia's real best mortgage deals
Owner-occupier variable with offset account held with an ADI
Variable Home Loan
Variable Home Loan
Community First Bank
Basic Variable Home Loan
Express Home Loan
Variable Home Loan
Source: mozo.com.au as at November 8, 2023, leading variable rates for owner occupier, principal and interest home loans at $400,000, 80 per cent LVR with an offset account available with an ADI.
WARNING: This comparison rate applies only to the example or examples given. Different amounts and terms will result in different comparison rates. Costs such as redraw fees or early-repayment fees, and cost savings such as fee waivers, are not included in the comparison rate but may influence the cost of the loan. The comparison rate displayed is for a secured loan with monthly principal and interest repayments for $150,000 over 25 years.
You could now get approved more easily
The final piece of the plan to lower your repayments is that it should now be easier to get a loan application across the line. The regulator has realised that the rule that has been locking borrowers in more expensive loans – so-called mortgage prison – is ludicrous. It is allowing lenders to use their discretion and assess your serviceability more leniently. So, even if you might not have been approved before, you might be now.
But, make sure you get a good indication of this before you apply – every rejection hurts your credit score.
All the talk is now of interest rates that will be higher for longer, with the RBA saying it is “resolute” in its determination to return inflation to the 2-3 per cent target band. And there may even be another rate hike as soon as next month.
So, pick up the phone or jump on the site of a better breed of mortgage provider – with a loan that starts with a "5" and saves $516 a month.