3 money changes you should have made in March

Australian houses, logos of NAB, CommBank, Westpac and ANZ.
Have you been making the most of this low-rate environment? Images: Getty

Australians have refinanced more than $53 billion worth of home loans in the last six months after the coronavirus recession prompted the Reserve Bank of Australia to slash rates.

The RBA in March took rates to their current record low of 0.25 per cent, triggering a refinancing “avalanche” that has seen the average refinancer net an extra $395 a month, or $4,740 per year.

And as the RBA moves to cut rates on Tuesday, those who haven’t made the most of the lower rates are set to lose even more cash if they don’t seek out a better deal.

A Finder survey found 34 per cent of homeowners plan to refinance in the coming year, while one-in-10 have already refinanced.

The Credit Union Australia (CUA) also reported a 23 per cent leap in refinancing applications since May.

“Refinancing can be one way to potentially save thousands of dollars over the term of your loan, and with interest rates at record lows it may be a good time to consider refinancing,” CUA chief customer officer Megan Keleher said.

Of those who refinanced, most (26 per cent) said they did so to find a better interest rate, while others were looking for loans with fewer fees, longer loan terms and for banks with an Australian call centre.

Here’s what you should have done since March, and what you can do now:

Check your home loan rate: you could save $31,000

If you haven’t checked your mortgage rate for a year, you could be paying too much.

In November 2019, the official RBA cash rate was set at 0.75 per cent, and in May 2019 it was at 1.50 per cent.

So if the RBA cuts rates to 0.10 per cent on Tuesday, as is widely predicted, homeowners should consider whether they’re paying out-of-date rates.

“For mortgage holders, another rate reduction will be welcome news – even a cut of 15 basis points could save the average home loan customer around $500 a year in interest,” Finder insights manager Graham Cooke said.

“Now is not the time for homeowners to be complacent. If the rate cut goes ahead and your lender doesn’t pass on the savings, it’s time to refinance to a more competitive deal.”

A homeowner with an average mortgage of $479,801 would save an extra $495 per year if their current variable rate fell from 3.99 per cent to 3.84 per cent.

And over the course of a 30-year loan, that’s an extra $14,857 in interest saved. On a $1 million loan, the savings blow out to $30,966.

Potential rate cut savings if banks pass on a partial cut

Source: Finder
Source: Finder database

However, CUA’s Keleher had a warning.

“It is a big financial decision and you need to consider more than just the interest rate. Fees and product features like redraw or offset facilities can make a big difference to the cost of your loan over time, so it’s important to do your research.”

Compare your savings rate

While the RBA’s interest rate cuts may have been good news for struggling homeowners, saving rates have suffered.

Australia’s major banks have been on a rate cutting binge in recent weeks as ANZ, NAB, Westpac and the Commonwealth Bank all cut savings rates by an average 0.20 per cent since September.

And it’s not just Australia’s big banks: a total of 50 banks have slashed savings rates.

“The trend of rate cuts for savers is likely to continue, not to the already near zero percent base rates but to bonus rates and introductory rates. No bank is keen to put a zero or negative savings rate into the market,” Canstar’s financial services executive Steve Mickenbecker said.

He noted that CommBank cut rates by another 0.10 per cent on Friday, encouraging savers to stay alert to better deals.

“Maybe a 0.10 per cent cut isn’t enough to spook savers but the aggregate cut of 0.90 per cent over the last 10 months should be a wake up savers to look for higher rates,” Mickenbecker said.

“Savers have been doing it tough and will continue to do so, as the Reserve Bank Governor has indicated the cash rate will stay low for years to come. We may be close to 0 per cent savings rates but there are still rates up to 2 per cent available that are government guaranteed up to $250,000.”

Top savings rates on Canstar:

Source: Canstar
Source: Canstar

And think about your credit card

While you’re at it, it’s worth comparing your credit card interest rate.

Mozo analysis found that Australians could save a collective $2.1 billion by swapping their credit card rate.

The highest credit card interest rate on the comparison site’s database charges 24.99 per cent - a huge 17.50 per cent higher than the cheapest rate on the database.

“At a time when travel linked rewards on high interest rate credit cards largely grounded due to the pandemic, getting value through this premium card category has become more challenging,” Mozo director Kirsty Lamont said.

“So if you’re carrying a balance forward on your premium credit card, you're not missing out on much at the moment by switching to a leading low rate card and reducing your monthly repayments.”

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