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RBA governor Philip Lowe encourages mortgagors to refinance

Alison Cheung avatar
Alison Cheung
- 5 min read
RBA governor Philip Lowe encourages mortgagors to refinance

Reserve Bank of Australia (RBA) governor Philip Lowe has thrown his support behind the fresh rise in home loan refinancing, as mortgage interest rates fall to historical lows.

In an online speech on Tuesday, Dr Lowe said it was worth shopping around and asking for a discount on their interest rate.

“I encourage people who haven't already taken up the opportunity to do that to look at their mortgage rate and look for a better deal,” he said.

“For many years I’ve been, in lots of public forums, I've been encouraging people to look at the rate they were getting from their bank, and if they weren’t getting a very low rate, go and knock on the door and set up a Zoom conference with their banker and ask for a better deal,” he said.

“And if the bank said no, go to another bank.”

How many Australians are refinancing their mortgages?

One positive that has come out of COVID-19, Dr Lowe said, was the number of people socially distancing at home who have been using their time to hunt for a better deal on their mortgages.

With cheap money flowing through the credit market, tens of thousands of Australians have already jumped at the opportunity for a lower interest rate.

Owner-occupiers refinanced either with their existing lender or by through another lender to the tune of $15.1 billion in May, according to the Australian Bureau of Statistics (ABS), a 25 per cent surge from April.

More than 21,000 Australians living in their own home took advantage of fierce competition for lower-risk borrowers in the home loan lender market and refinanced about $10 billion worth of mortgages to an external lender in May.

Yet in the same month, the value of new owner-occupier home loan commitments fell by about 10 per cent to $12.31 billion.

Dr Lowe said it was the first time that the value of refinance loans was almost as high as the number of loans on newly purchased properties. 

“I've been very pleased to see the amount of refinancing going on,” he said.

“(Through refinancing), people get a better deal, it frees up some cash flow and it puts some extra competitor discipline to the banking system.”

Dr Lowe added that the real estate market has “held up as well as I would hope”, and the state of market would be determined largely on the jobless rate and the availability of work, particularly for younger Australians.

“If they (young people) get jobs and they get training, the housing situation will inevitably look after itself one way or another,” he said.

How many lenders have cut mortgage interest rates?

Minutes for the RBA July interest rate meeting, published on Tuesday, noted that fixed-rate mortgages were rising in popularity.

“Interest rates on new fixed-rate mortgages were noticeably lower than on new variable rate mortgages, which had led to an increasing share of new or refinanced loans on fixed rates.”

Lenders are trimming interest rates on more fixed-rate mortgages than on variable-rate ones, RateCity data found.

Forty lenders slashed interest rates across 487 fixed-rate home loans in June and July, despite no changes to the official cash rate. For variable-rate mortgages, 42 lenders reduced rates across 260 home loans.

More than 20 lenders lowered rates across their fixed and variable products.

In total, 57 lenders made an interest rate cut to at least one of their mortgages, with the rate reductions in the June and July period averaging at 24 basis points.

Fixed-rate mortgages

Variable-rate mortgages

Total

No. of lenders that have cut rates in June & July

40

42

57

No. of home loans with rate cut in June & July

487

260

747

Note: As of July 22, 2020. Source: RateCity.

What are the lowest home loan interest rates available?

NOTE: Rates are accurate as of the time of writing. For today’s lowest interest rates, compare home loans at RateCity.

As the home loan interest rate contest escalates, mortgage borrowers may be in a position to benefit. If you’re looking for low-interest home loans, there are several options either below 2 per cent or hovering just above that.

The lowest fixed home loan rate on the RateCity database comes from Bank of Us, which was the first lender with a mortgage rate to dip below 2 per cent. Tasmanian residents are able to access a fixed rate of 1.99 per cent (2.71 per cent comparison rate) on their home loan. 

If you live on the mainland, Homestar Finance has a fixed-rate home loan at 2.06 per cent (2.38 per cent comparison rate).

For those wanting some flexibility, the lowest variable home loan rate is Loans.com.au’s 1.99 per cent introductory rate (2.71 per cent comparison rate). Be aware that the rate is valid for 12 months, and after expiry, the rate reverts to 2.57 per cent.

If you don’t like the idea of a honeymoon rate that will expire, Freedom Lend is offering a 2.17 per cent variable-rate home loan (2.17 per cent comparison rate) for new customers with a deposit of at least 30 per cent.

Disclaimer

This article is over two years old, last updated on July 22, 2020. While RateCity makes best efforts to update every important article regularly, the information in this piece may not be as relevant as it once was. Alternatively, please consider checking recent home loans articles.

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Product database updated 29 Mar, 2024

This article was reviewed by Personal Finance Editor Mark Bristow before it was published as part of RateCity's Fact Check process.

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