Today the Australian Competition and Consumer Commission (ACCC) said home loan refinancers could save $17,000 in extra interest paid.
ACCC modelling found that borrowers with home loans between three and five years old paid an average of 58 basis points (0.58%) more than the average interest rate on new loans.
According to the Australian Securities and Investments Commission (ASIC), the average interest rate in September was 2.62% p.a.
The ACCC says with a home loan of $250,000, refinancing could save $1,400 in interest in the first year, and over the remaining term, the borrower could save more than $17,000 in interest.
Buying a home or looking to refinance? The table below features home loans with some of the lowest interest rates on the market for owner occupiers.
Smart Booster Home Loan
- Discount variable for 1 year <=80% LVR
- No ongoing fees
- Unlimited redraw facility
Monthly repayments: $1,476
- Discount variable for 1 year
- No ongoing fees
- Unlimited redraw facility
Base criteria of: a $400,000 loan amount, variable, fixed, principal and interest (P&I) home loans with an LVR (loan-to-value) ratio of at least 80%. If products listed have an LVR <80%, they will be clearly identified in the product name along with the specific LVR. The product and rate must be clearly published on the Product Provider’s web site. Monthly repayments were calculated based on the selected products’ advertised rates, applied to a $400,000 loan with a 30-year loan term.
Among a raft of recommendations, the ACCC has recommended lenders be required to 'regularly' prompt borrowers whose loans are older than three years to review their current interest rate.
“A significant number of Australian home loan borrowers have not switched lenders for several years, yet they stand to save so much money by doing so,” ACCC Chair Rod Sims said.
“There are factors standing in the way of home loan borrowers switching lenders, such as a lack of clear and transparent pricing, as well as inconvenience and time costs, but for many borrowers switching will be worth the effort.”
Mr Sims also said Consumer Data Right will make the refinancing process easier.
“We remain concerned about opaque pricing in the home loan market, but are encouraged that some banks are moving to more transparency without direct intervention from the government,” he said.
“We are recommending ongoing monitoring of this market so we can ensure that this trend of improved pricing transparency continues. We may recommend further action if it does not.”
'Sticky' products and refinancing
The $250,000 yardstick the ACCC has used could be a conservative measure - the average loan written, according to lending indicator figures, in October was more than $566,000.
External refinancing was down, in original terms, to about $7.7 billion in October - down from highs of nearly $10 billion in May.
October had an average external refinancing loan size of nearly $474,000.
However, internal refinancing was up in October from September to nearly $4.8 billion, though this is still down from May's highs of nearly $5.3 billion.
October's internal refinancing had an average loan size of nearly $416,000.
After the Reserve Bank's (RBA) cash rate cut to 0.10% in November, many lenders moved to introduce home loans with advertised rates under 2%, yet very few of these were variable.
The ACCC also proposed a time limit of 10 business days for lenders to complete the discharge authority process.
Mr Sims said lenders at present have no incentive to make the discharge process "quick or straightforward".
“We want it to be as easy as possible for borrowers to switch lenders, as it should be in all markets. Our recommendations are designed to make this process faster, less confusing and less frustrating," he said.
The RBA has also provided a $200 billion 'term funding facility' (TFF), which enables banks to access low-cost funding at 0.10% per year over three years: the same amount of time many lenders are offering their competitive fixed home loans for.
As of August, CommBank, for example, had accessed $31.4 billion in the TFF.
The entire market was not considered in selecting the above products. Rather, a cut-down portion of the market has been considered which includes retail products from at least the big four banks, the top 10 customer-owned institutions and Australia’s larger non-banks:
- The big four banks are: ANZ, CBA, NAB and Westpac
- The top 10 customer-owned Institutions are the ten largest mutual banks, credit unions and building societies in Australia, ranked by assets under management in November 2020. They are (in descending order): Credit Union Australia, Newcastle Permanent, Heritage Bank, Peoples’ Choice Credit Union, Teachers Mutual Bank, Greater Bank, IMB Bank, Beyond Bank, Bank Australia and P&N Bank.
- The larger non-bank lenders are those who (in 2020) has more than $9 billion in Australian funded loans and advances. These groups are: Resimac, Pepper, Liberty and Firstmac.
- If you click on a product link and you are referred to a Product or Service Provider’s web page, it is highly likely that a commercial relationship exists between that Product or Service Provider and Savings.com.au
Some providers' products may not be available in all states. To be considered, the product and rate must be clearly published on the product provider's web site.
In the interests of full disclosure, Savings.com.au, Performance Drive and Loans.com.au are part of the Firstmac Group. To read about how Savings.com.au manages potential conflicts of interest, along with how we get paid, please click through onto the web site links.
*Comparison rate is based on a loan of $150,000 over a term of 25 years. Please note the comparison rate only applies to the examples given. Different loan amounts and terms will result in different comparison rates. Costs such as redraw fees and costs savings, such as fee waivers, are not included in the comparison rate but may inﬂuence the cost of the loan.
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