Refinancing can be "too much of a hassle," but it's definitely worth it
Nearly half of Australian mortgage holders are now under serious financial stress, as home loan variable rates starting with 5, 6, and 7 become the norm, analysis by Mozo.com.au showed.
Earlier this year, the financial comparison site commissioned a nationally representative survey via Researchify to ask homeowners at what interest rates they would be under “serious financial stress.”
The survey of 1,058 Australian homeowners, aged 18 years and over, found that 46% of mortgage holders would be under serious financial stress at interest rates of 5% (13% of the respondents), 6% (15% of the respondents), and 7% (18% of the respondents).
In a statement, Mozo said its industry analysis of rate changes in August found that advertised rates starting with 5, 6 and 7 are now the norm, and despite two consecutive cash rate pauses – three now after the Reserve Bank’s Sept. 6 cash rate decision – variable rates on home loans have continued to rise.
Mozo’s database showed that the average variable rate across all lenders for an owner-occupier home loan was 6.6%, while the average variable rate for a big-four home loan was 7.21%.
“There were a number of ‘out of cycle’ rate rises in August putting more pressure on household budgets,” said Rachel Wastell (pictured above), Mozo money expert. “Homeowners are now scrambling to find thousands more every month to cover the jump from 2% rates just a year ago, to rates starting with 5, 6, and 7 today.”
Based on the average variable rate of 6.6%% across all lenders in the Mozo database, Australians with a home loan of $500,000 have been forking out an additional $1,031-plus on monthly home loan repayments. That jumps to over $2,000 for those with a million-dollar mortgage.
Despite the big savings in interest by trying to secure a lower rate, many borrowers are reluctant to switch, Mozo said, with research showing that one in three haven’t refinanced as it’s “too much of a hassle.”
This “hassle” could be well worth it though, as refinancing a $500,000 mortgage from a starting rate of 7.21%, to a rate of 6.6%, equates to massive $58,144 in total savings over a 25-year loan term.
“Borrowers should be keeping an eye on the market to see if they can get a better deal on their rate,” Wastell said. “Refinancing may seem like a hassle, but with online applications speeding up the process and the potential to save tens of thousands of dollars in interest, it’s definitely worth investigating.”
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