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With interest rates at 12-year highs, many are easing the pressure through refinancing their mortgage. Studies have shown that a growing number of those who do so are choosing to remain with their current lender.
The RBA recently held its cash rate at 4.35 per cent. This is the largest the rate has been in 12 years, putting many mortgage owners under pressure.
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Refinancing can be an attractive option to try and reduce repayments. According to a 2023 study, financial year 2023 saw a 13.8 per cent increase in home loan refinancing.
Now, with more people going down this path in a bid to cut costs, a growing number are opting to remain with their current lender.
A study from Money.com.au revealed that borrowers refinancing with their current lender are up 24 per cent annually.
Money.com.au’s home loan expert Mansour Soltani believes more should jump on the lucrative trend and be tactical about how they approach loan repayments.
“Lodge a discharge form with your current lender that signals your intention to move your mortgage elsewhere, which is a step further than simply asking for a rate review,” said Soltani.
“The retention team will usually contact you to see what they can offer to retain your business, so be sure to have competing lender rates handy as a bargaining chip when they call.
“This tactic generally works best if you have a mortgage over $800,000, as lenders are more likely to fight to keep larger loans on their books compared to smaller loans under $500,000.”
According to a statement from Money.com.au, “switching an $800,000 loan with a 25-year term from the average rate on existing home loans (6.37 per cent according to the RBA) to the average rate for new loans (6.27 per cent) would save $49 per month or $588 a year. A borrower who negotiated hard for a larger discount of 20 basis points would save $99 per month or $1,188 a year.”
Consumers are catching on to the benefits of switching lenders. However, loyalty is keeping strong as the study revealed 42 per cent of all refinancing was done through the existing lender. Meanwhile, external refinancing saw an 11 per cent drop over the year.
“Banks are being aggressive on the retention front as well as trying to acquire new clients, so now is a good time to negotiate and speak with a broker as they will know which lenders are being aggressive and which ones won’t play ball,” said Soltani.
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