COVID-19 has wrecked havoc on the worlds economies. Australia has taken many measures to fix its economy, one of those factors has come in the way of the Reserve Bank of Australia (RBA) reducing the cash rate to 0.25%, and the government reducing the amount of red tape surrounding home loan lending.
These factors have made it easier for borrowers to take out new loans or refinance. At Finance Mutual Australia we have used this opportunity to help our clients refinance with a cheaper lender. The average loan in 2015 cost you 4.7% in interest, compared to the 2.7% we are getting our clients now. On the average home loan of $400,000 that is a saving of $5000 in the first year and over $130,000 over the life of the loan. Read more.
Interest rates have hit historic lows and are only expected to drop further as competition mounts and the RBA keeping the cash rate at 0.25%. Variable rates and fixed rates alike hit historic lows earlier this year with the first round of RBA’s rate drops and have been gradually dropping since.
- Interest rate hit historic lows
- Australia’s COVID induced economic cliff
- ABA and government action on the economy
- Who’s benefiting the most from new policies?
- How can you benefit from new policies?
Facing an economic cliff
These rate drops have come in response to the seemingly looming economic cliff that the Australian Banking Association (ABA) and Government of Australia had unwittingly created by coinciding the end of government jobkeeper/jobseeker support and the Banks’ mortgage deferral program. Economists and market watchers like myself warned of the real possibility for systemic defaults and forced sales as the impending economic cliff fast approached in September.
Fixing the issue
Luckily the ABA and government decided to gradually restrict access of their respective support programs to the most needy, eventually removing support all together early next year. Unfortunately Australia still has 2.3 million borrowing families experiencing mortgage stress and just as concerning is the 1.5 million borrowing families who are reliant on credit to make ends meet. A cycle which can end very badly.
In response to these ongoing risks the RBA has decided to maintain it’s low cash rate at 0.25%. Additionally, the government is planning to reduce the red tape surrounding lending which should make it easier for borrowers to acquire a loan or refinance.
These measures provide opportunities for all Australians and first home buyers have been taking advantage of them that resulted in a decade high influx of first home buyers. First Home buyers and Investors alike have been taking advantage of the more friendly entry costs that have resulted from the lowered interest rates and of course the HomeBuilder Grant. These benefits have certainly made it easier for those looking to enter, or invest in the property market.
How can you benefit?
Record low interest rates don’t just benefit those entering or investing in property, established property owners also benefit. Take this example: the average home loan in 2015 cost you 4.7% in interest, compared to the 2.7% we can get you now. The average South Australian home loan comes to $400,000, so should you refinance with Finance Mutual Australia today, you would save an incredible $5202 in your first year and a total of $130,045 across the life of your loan. Not to mention the upfront $2000 mortgage refinance rebates that are on offer by some banks today.
It is important to consider your individual circumstances. Some people may not be able to refinance because they recently lost work, or another form of income. Additionally, the numbers may not apply to you. As a general rule of thumb, if the interest rate is higher, or the loan amount is higher you could stand to save even more than $5202 in your first year, and $130,045 over the life of the loan, by refinancing to a lower interest rate.
Comparatively, if your loan size is smaller, and your interest rate lower than 4.7%, then you stand to save less. For example, a loan of $300,000 at 3.7% refinancing to 2.7% would save you closer to $1900 in the first year and $47,000 over the life of the loan. So the outcome can vary wildly. However, it is sure that you will save something. Use our mortgage switching (refinance) calculator for an estimate of how much you could save with us.
We are experts at considering your financial and lifestyle needs/aspirations, and finding the optimal loan for your circumstances. Refinance with Finance Mutual Australia today. Contact us today!