Home owners are in the box seat to save thousands of dollars on their mortgage as increased competition pushes more lenders to cut their variable rates below 2 per cent.
Fixed rates appear to have hit rock bottom, but lenders are trimming their variable cousins in a bid to snatch a larger share of the red-hot refinancing market.
Data released last week by the Australian Bureau of Statistics shows the value of refinanced home loans reached an all-time high of $17.2 billion in July 2021, after rising by 6 per cent over the month.
The extra competition has encouraged lenders to take an axe to interest rates to win over new customers.
Analysis from RateCity.com.au shows the number of variable rates under 2 per cent has risen from 28 to 46 in just two months.
The flurry of activity has come despite no changes to the official cash rate set since November 2020, with the RBA holding firm at a record-low 0.1 per cent at its monthly board meeting on Tuesday.
RateCity research director Sally Tindall said the banks were increasingly shifting their attention to variable rates, having already taken fixed rates as low as they are willing to go.
She said Westpac had upped the ante among the Big Four banks last month by cutting its introductory variable rate to 1.99 per cent.
“This sub-2 per cent rate from Australia’s second-biggest bank is likely to put pressure on other lenders to rethink their variable rates,” Ms Tindall said.
“The last thing lenders will want is to start losing customers to Westpac.”
The heightened competition in the home loan market means there has never been a better time for home owners to shop around for a cheaper deal on their mortgage.
The average variable-rate customer is paying an interest rate of 3.05 per cent, according to the RBA.
That is much higher than the lowest variable rate on the market of 1.77 per cent – a product offered by Reduce Home Loans that is only available to people with a maximum loan-to-value ratio of 60 per cent.
Someone with a $500,000, 20-year mortgage could save $74,450 over the life of their loan by switching from the average rate of 3.05 per cent to the lowest rate of 1.77 per cent – ignoring the impact of fees.
That is the equivalent of about $3732 saved every year, or about $311 every month.
The potential savings are even greater for people who switch to the most competitive fixed-rate mortgages, as fixed rates have fallen even lower during the pandemic.
But fixed rates aren’t for everyone.
They often have no offset account option and typically impose caps on additional repayments.
Before they make the decision to switch, home owners should check whether their lender will charge any fees for doing so, and make sure to take these into account when comparing monthly mortgage repayments.