Borrowers fail to cash in on lower rates

Comparison site Canstar conducted a survey of 2,717 mortgage holders between February and April this year to understand how customers are feeling about their home loan amid the upheaval caused by the bushfires and the coronavirus pandemic in 2020.

The survey found that despite home loan interest rates breaking a record low of 1.99 per cent recently, 82 per cent of all mortgage holders want a lower home loan rate.

Meanwhile, 58 per cent said their interest rate could be lower but “it’s okay”, while only 18 per cent said their rate is one of the lowest.

Commenting on the new findings, Canstar finance analyst Steve Mickenbecker said mortgage holders “are their own worst enemy”.

“Four in five people know they are paying too much on their loan, and almost two thirds say it’s okay,” Mr Mickenbecker said.

“You can’t settle for okay when it comes to your biggest bill each month.

 “Today’s average variable home loan interest rate of 3.46 per cent might sound okay when you remember repaying your loan at an interest rate of 8.00 per cent but it doesn’t compare to the record low rates of today,” he said.

“If you’re settling for a rate of 3.46 per cent you could be throwing about $3,288 a year compared to the lowest variable rate of 2.17 per cent, and who can afford that right now?”

The survey also found that almost a quarter, or 24 per cent of mortgage holders said their interest rate was too high.

According to Canstar home loan insights for June, there were 23 cuts to variable interest rates for homeowners in June, and 24 for investors.

For homeowners, variable rates were cut by an average of 0.18 per cent for those paying principal and interest and 0.31 per cent for those paying interest only.

Canstar calculations revealed that swapping from the average variable rate of 3.46 per cent to the lowest variable rate in the market (2.17 per cent with a loan to property value ratio of 70 per cent) can reduce monthly mortgage repayments by $274 or $3,288 annually. 

Similarly, by moving from the average three-year fixed rate of 2.61 per cent to the lowest rate of 1.99 per cent, borrowers could save an extra $127 a month or $1,524 annually.

“If you know your home loan interest rate is too high, now is the time to put the knowledge into action. We’ve never seen a home loan market like we have now where lenders are so keen to undercut their competitors’ rates.”

[Related: Bank hikes mortgage rates by up to 40 bps]