Most Australian mortgage holders are traditionally reluctant to consider shopping around for an alternative home loan as they need convincing they can achieve sufficient annual savings, says leading mortgage broker Priority Lending.
A national survey by Priority Lending found 41 per cent of the 763 respondents said they would want to obtain savings of between $2,000 and $5,000 to consider refinancing.
Priority Lending Corporate Spokesman Paul Smith said 27 per cent of respondents said they would need to save over $5,000 a year to be motivated to refinance with another lender.
Mr Smith said the survey found only four per cent of people could be bothered to switch for annual savings of up to $1,000.
He said 17 per cent of respondents would refinance if they could save up to $2,000, while 33 per cent said they would need to save between $2,000 and $5,000.
Mr Smith said post GFC, many Australian borrowers have been reluctant to switch to lenders whom they were unfamiliar with despite price wars between the major banks.
“Borrowers who threatened to switch lenders also were often satisfied with the response they received from the banking retention teams,” he said.
But Mr Smith said major banks moving their interest rates independently of the Reserve Bank of Australia (RBA) had triggered a new wave of refinancing enquiry.
“Consumers have been questioning if they’re better off with their current lender given the uncertainty about banks passing on any reduction in the cash rate by the RBA,” he said.
“The fact is some borrowers can achieve significant annual savings by shopping around and getting a better deal on a mortgage with a much more competitive package.”
Mr Smith said a borrower on a 25 year, $350,000 mortgage could save up to $2,600 in annual repayments with a one percentage point drop in their interest rate.
“There are numerous benefits to refinancing, such as consolidating debt on credit cards which have interest rates often more than triple that of an average variable home loan,” he said.
“While refinancing is a simpler process compared to applying for a new loan, borrowers still need to consider the long term benefits of switching as well as if the loan suits their individual circumstance.”
Survey Results:
What level of annual savings would you need to achieve to consider refinancing your home loan?
0-$1,000 – 4%
$1,000-$2,000 – 28%
$2,000-$5,000 – 41%
Over $5,000 – 27%
Source: Priority Lending
