Rate relief: How to save $500 a month on mortgage repayments

Mortgage holders could save hundreds by refinancing to a lower interest rate. (Source: Getty)

The Reserve Bank of Australia (RBA) kept the official cash rate steady at 4.1 per cent yesterday, but many mortgage holders are already buckling under the pressure of the board’s 12 previous interest rate hikes.

Borrowers with a $500,000 loan are already paying an extra $1,217 in monthly repayments - or $14,604 per year - since the RBA started lifting rates in May last year, according to Canstar’s analysis.

Mortgage holders may still have another two more rate hikes to conquer this year, with the cash rate unlikely to fall until 2025.

• Also read: RBA holds interest rates, but ‘we aren’t done yet’

• Also read: $1,200 blow: Thousands of Aussies face looming mortgage cliff

• Also read: Another RBA rate hike could send Australia into recession

“Buyers who jumped into the market - borrowing up to their limit in the lead-up to the first Reserve Bank rate increase in May last year - will particularly be feeling the pain,” Canstar finance expert Steve Mickenbecker said.

“Two more rate increases will see repayments absorbing around 45 per cent of borrowers’ before-tax income - well and truly at stress levels.”

Borrowers are now being urged to get a better deal on their home loan, with a near-record number of mortgage holders refinancing to a new lender in May.

“This trend will likely continue as borrowers have to search for savings. Switching from an average variable rate of close to 7 per cent on a $500,000 loan to one under 5.40 per cent could bag savings of $500 per month,” Mickenbecker said.

Best home loan rates

Existing mortgage holders with an average variable rate of 6.98 per cent can get a 1.59 per cent rate cut by switching to the lowest variable rate of 5.39 per cent.

This can potentially save them $515 per month on a $500,000 loan, repaid over 30 years.

Best savings rates

In a silver lining for savers, interest rates on savings accounts are now heading towards highs.

“Savers can celebrate as they are finally receiving reasonable rates, but that is only if they are with the right bank and the right product,” Mickenbecker said.

“Bonus account rates and introductory rates have done well, but regular savings account rates are still performing dismally, with only around half of the Reserve Bank rate increases being passed on to savers.”

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