The speed and scale of interest rate rises have been, well, scary. They are calculated to be so – surging consumer prices need to be stopped.
However, rather than waiting in trepidation for the next upwards rate move – there will likely be another 50-basis-point Reserve Bank of Australia (RBA) rise on Tuesday – you could probably give yourself a rate cut by taking a little pre-emptive action.
Despite recent mortgage rate rises, there remains a huge gulf between what the big-four banks are offering on their variable-interest rate mortgages and what can be found at some smaller lenders, who generally offer the best rates. And I mean huge.
If your home loan is on an advertised big-bank package mortgage interest rate, you are likely paying 2.67 percentage points more than the cheapest comparable product. If you are on the discounted package rate, you are still forking out 1.61 points over the odds. That adds up to a lot of money you are paying for nothing in your fast-rising monthly mortgage payments.
However, by simply switching home loans from a discounted big-bank rate to the best available, you would almost entirely undo the “damage” the RBA has so far done with your higher mortgage payments.
In case I haven’t got your attention yet, let’s put some dollar figures on this.
By switching from a big-bank mortgage rate to the best available, you could under the damage the RBA has done with your higher repayments.
The average national mortgage is $611,158; today, the big-four bank average discounted rate is 4.7 per cent (compared to the headline rate of 5.76 per cent), while the mortgage interest rate on the most competitive, the comparable product is at 3.09 per cent.
If you refinance that mortgage to the lowest rate – and $380 billion worth of home loans has been refinanced since the beginning of the coronavirus crisis – you would shave $540 a month off your repayments, cutting them to $2927 (based on a 25-year mortgage ).