The banning of mortgage exit fees in 2011 has failed to prompt more home loan customers to refinance their mortgages, new research shows.
The Australian Bureau of Statistics shows loan refinancing is near its lowest level in two years at 32 percent of all loans in May. This compares with 34 percent in July 2011.
Alex Parsons, chief executive of RateCity, said only a small proportion of borrowers are changing their home loans despite historically low interest rates.
“We expected more borrowers to take advantage of the ban on exit fees and refinance their home loans,” he said.
The exit-fee ban covers variable rate home loans and applies to loans taken out after July 1, 2011, and could save customers thousands of dollars, he said.
The RateCity database shows that the average standard variable interest rate is 5.64 percent, but there are 167 variable home loans with rates below this and starting from 4.74 percent.
RateCity calculations show that by switching a $400,000 home loan from the average rate to one of the lowest available in the market a borrower could free up more than $200 per month.
Why won’t borrowers budge?
Typically, borrowers do not refinance in the first four-to-five years of a home loan, says Brad Seymour, head of retail at Yellow Brick Road, “So that’s likely to be a phenomenon in 2015 to 2016.”
“Also, refinances tend to happen when interest rates change, when the person has an incident where they have got to do a renovation, or when they have enough equity in their home to do it,” he told News Corp Australia.
“A soft property market in the last couple of years is also another reason.”
A separate study conducted in August last year revealed that a third of Australians believe it’s too time consuming and costly to switch banks.
The study by UBank found that around 40 percent of borrowers did not know the interest rate they paid on their home loan.
At the time, a spokesman for the bank said Australians remained apprehensive when it comes to shopping around for a better home loan deal.
“The apathy syndrome is about not investing time or effort because it’s all too hard,” he said. “The reality is switching is really simple, it’s really quick and you can make really big savings fast.”
Should you refinance your home loan?
Here are some things to think about:
- Look at the comparison rate, not just the headline rate.
- Is the new loan a better option for your circumstances and does it give you more flexibility?
- Use a comparison website such as RateCity to check the lowest available rates in the market.
- Before you switch, use this data to negotiate with your existing lender for a better deal on your current home loan – you could save yourself thousands.