As interest rates hit their highest point in 12 years, more homeowners are turning to Refinancing to ease financial stress. Recent studies show that many of them prefer to stay with their current lenders instead of switching to new ones, marking a clear trend in mortgage refinancing.
The Reserve Bank of Australia (RBA) recently kept its Cash Rate at 4.35%, a level not seen since 2012. This has put significant pressure on mortgage holders, many of whom are now seeking ways to lower their monthly payments. Refinancing, which involves replacing an existing mortgage with a new one on different terms, has become a popular solution for reducing financial strain.
A 2023 study found that home loan refinancing increased by 13.8% during the financial year 2023, showing the growing popularity of this financial strategy. As more people consider refinancing to save money, many are choosing to stay with their current lender instead of switching to a new one.
A study reported a 24% yearly increase in borrowers who decided to refinance with their existing lender. Home loan experts advise borrowers to take advantage of this trend by being strategic with their loan repayments.
One suggestion is to submit a discharge form to your current lender, indicating your plan to move your mortgage elsewhere. This can prompt the lender’s retention team to contact you with offers to keep your business. Having competitor rates ready can help you negotiate a better deal when they reach out.
Experts point out that this strategy is particularly effective for borrowers with larger loans. It tends to work best for mortgages over $800,000 because lenders are more inclined to retain larger loans compared to smaller ones under $500,000.
For example, if you switch an $800,000 loan with a 25-year term from the average rate on existing home loans (6.37%, according to the RBA) to the average rate for new loans (6.27%), you could save $49 per month or $588 per year. If you negotiate more aggressively, you might save $99 per month or $1,188 per year.
Although more people are becoming aware of the benefits of switching lenders, loyalty to current lenders remains strong. The study showed that 42% of all refinancing was done with existing lenders, while refinancing with new lenders dropped by 11% over the year.
Banks are actively working to keep their current customers while also trying to attract new ones, so this is a great time to negotiate. Speaking with a broker can help since they know which lenders are more likely to offer better deals and which ones are less flexible.
As interest rates keep rising, the trend of refinancing with your current lender is likely to increase, giving borrowers a good way to manage their mortgage payments and secure better financial terms.
Conclusion
As interest rates rise, more homeowners are refinancing their mortgages to handle their payments better. Many are choosing to stay with their current lenders rather than switch. By negotiating with their current lenders, especially for larger loans, borrowers can often get better terms. This trend is likely to grow as people look for ways to ease the financial pressure from high interest rates.
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