Homeowners are counting their lucky stars after the Reserve Bank of Australia (RBA) left the cash rate on hold at Tuesday’s August Board meeting.
Despite the annual rate of inflation increasing in June to 3.8%, Compare the Market Economic Director David Koch said it was not enough to force the RBA’s hand into delivering a rate rise.
“Many economists have warned that a further rate rise could put Australia’s economy at risk and wipe out the benefits of tax cuts and real wage gains,” Mr Koch said.
“Unfortunately, there are already many borrowers in the hurt locker, struggling to meet repayments.
“People who borrowed close to their maximum amount have either had to sell or are just treading water because the 3% serviceability buffer applied by most banks has been eroded away by higher repayments.
“According to SQM research, the number of residential properties sold under distressed conditions in Australia has risen to 256,000, reflecting a 6.9% increase.”
But a Compare the Market survey of homeowners revealed that 18% didn’t know their interest rate while approximately 45% had been with the same lender for more than five years.*
Mr Koch said this indicates that there are a tonne of homeowners who could have been getting a better deal and saving money on their monthly mortgage repayments.
Compare the Market analysis of some of the rates available from the Big Four showed the average difference between front-book (what new customers pay) and back-book (what existing customers pay) rates is 1.96%.
Therefore, a person with an owner-occupier $750,000 loan could save $1,008 a month by switching from a rate of 8.54% to 6.58%.
| Mortgage size | The difference between variable rates in the market | ||
| Minimum monthly repayments on variable P&I rate of 6.58% | Minimum monthly repayments on variable P&I rate of 8.54% | Difference in monthly minimum repayments | |
| $500,000 | $3,187 | $3,859 | $672 |
| $600,000 | $3,824 | $4,631 | $806 |
| $750,000 | $4,780 | $5,788 | $1,008 |
| $900,000 | $5,736 | $6,946 | $1,210 |
| $1,000,000 | $6,373 | $7,718 | $1,344 |
| Monthly repayments do not include any reduction in the mortgage balance over time. These calculations assume: An owner-occupied variable interest rate of 6.58% compared to 8.54% p.a; principal and interest (P&I) repayments; the loan term is 30 years; and there are no monthly fees. | |||
Mr Koch said people stuck on a back-book rate could potentially be throwing away hundreds of dollars.
“The decision to switch and save ultimately lies with the borrower.
“Banks aren’t going to tell you you’re on a back-book rate; you’ve got to do the research and see if you’re actually getting a good deal.
“I’d urge anyone who’s been with the same bank or lender for the past few years to be inquisitive because they could be spending more money than they need to.
“If there’s a big difference between your rate, and the ones that are advertised, it’s probably time to refinance.”
Mr Koch said people can potentially find their own rate cut today by using websites like Compare the Market.
*Compare the Market survey of 1005 homeowners conducted in September 2023.
Australians with a $750,000 mortgage on a variable rate could already be paying $1,940 more each month than they were at the start of May 2022.
| Mortgage size | Increase in average monthly repayments since the start of May 2022 (4.25%) |
| $500,000 | + $1,293 |
| $600,000 | + $1,552 |
| $750,000 | + $1,940 |
| $900,000 | + $2,328 |
| $1,000,000 | + $2,586 |
| Reserve Bank Lenders’ Interest Rates. Monthly repayments do not include any reduction in the mortgage balance over time. These calculations assume: An owner-occupied variable interest rate of 2.86% p.a in May 2022; principal and interest (P&I) repayments; cash rate increases are passed on in full; the loan term is 30 years; and there are no monthly fees. | |
For more information, please contact:
Natasha Innes | 0416 705 514 | [email protected]
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