Mortgage mistake: 70% missing out on savings

A shocking 70 per cent of mortgage holders are missing out on potential savings by hesitating to refinance, despite the Reserve Bank of Australia’s recent rate cut to a two-year low of 3.85 per cent, new research reveals.

According to Money.com.au, 45 per cent of homeowners remain undecided about refinancing this year, while 25 per cent are waiting for further rate reductions.

Meanwhile, 30 per cent are preparing to switch to variable, fixed, or split loans.

The indecision could cost millions of homeowners dearly, according to mortgage expert Debbie Hays, who warns that those who haven’t refinanced since the RBA began cutting rates might not be getting the best deal.

“Lenders often provide better rates to new customers, leaving existing ones on higher rates,” she said.

“If you haven’t refinanced recently, you might be paying a loyalty tax.

“The best variable rates are now in the mid-5s. If your rate is above that, you’re not on a competitive deal, or worse, you’re on a dud rate.”

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Michele Bullock during a press conference following the RBA announcement to cut the interest rate by 0.25 percentage points in May. Picture: NewsWire / Nikki Short

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Hays stresses that refinancing now allows borrowers to secure a lower rate immediately and still benefit from future cuts.

“Starting from a lower base compounds your savings because every future cut begins from that cheaper point, resulting in much lower repayments than for someone who stayed on the fence,” she said.

How refinancing early pays off with every rate cut

To illustrate, consider a borrower with a $600,000 loan over 25 years who refinances from a 6 per cent rate to 5.75 per cent. They would save around $91 monthly right away.

If the RBA delivers two more expected cuts this year, lowering rates by another 0.50 per cent, a borrower who refinanced early to 5.75 per cent would see their rate drop to 5.25 per cent, while someone who stayed at 6 per cent would only fall to 5.5 per cent.

NAB currently has one of the highest mortgage rates.

Both borrowers would benefit from the cuts, saving around $180 monthly compared to their original repayments.

However, the early mover gains an extra $91 monthly by starting from a lower base, totalling about $270 in monthly savings compared to $180 for someone who didn’t refinance early. Annually, that’s approximately $3,240 in savings for the early mover, compared to $2160 for the borrower who didn’t refinance – a difference of $1,080.

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