Average borrower paid almost $6K extra last year, even as rates hold

The average borrower who hasn’t refinanced their home loan in the last 12 months has paid almost $6,000 extra in interest as a result, new research from RateCity.com.au shows.

While there is little expectation the RBA will cut the cash rate today at its last meeting for the year, borrowers can still get themselves a rate cut and wind back some of that lost interest by refinancing.

The research shows the average borrower with a $500,000 loan a year ago will have paid an estimated $35,308 interest on their home loan in the last 12 months between December 2023 and November 2024. This assumes the borrower has not renegotiated their rate in that time.

However, if they had refinanced one year ago, their interest bill would have been $29,708 in that time – a saving of $5,600.

Estimated interest paid: last 12 months

Based on an owner-occupier with a $500K loan at December 2023 with 25 years remaining

Source: RateCity.com.au. Assumes borrower is paying principal and interest  with 25 years remaining on the average variable owner-occupier rate, which was 2.86 per cent at the start of the hikes.

All big four banks in tune for hold in December – but not February

All of the big four bank economic teams are forecasting a hold for the RBA’s December meeting today.

Westpac, NAB and ANZ all believe the next cash rate cut will be a 0.25 percentage point drop in May next year, and CBA is forecasting a rate cut in February.

Current big four bank cash rate forecasts

Refinancing or haggling the key to reclaiming lost interest

With rates likely to remain on hold for the next five months, borrowers should seek out rate relief for themselves over the holiday period.

The RateCity.com.au database shows there are around 40 lenders offering variable home loan rates under 6 per cent.

Lowest variable home loans on the RateCity.com.au database

Source: RateCity.com.au. Note: rates are for owner-occupiers paying principal and interest. Deposit requirements apply, excludes green loans, lowest variable excludes introductory rates. *First home buyers only.

If the average borrower, who has not negotiated their rate, refinances to a rate of 5.99 per cent, they could potentially save almost $10,000 in interest over the next two years, even after switch costs of $1,250 are factored in.

Potential savings from refinancing the home loan over summer

Based on an owner-occupier switching from 7.11% to 5.99%

Source: RateCity.com.au. Note: based on an owner-occupier paying principal and interest with 25 years remaining. Assumes rates move in line with CBA’s cash rate forecast.

RateCity.com.au money editor, Laine Gordon, said: “Plenty of borrowers would have liked a little treat in the form of a rate cut for Christmas, but they’ll need to gift it to themselves.”

“If you haven’t refinanced your home loan recently, what are you waiting for? On average, borrowers forked out $6,000 in extra interest last year because they hadn't gotten around to switching. That money is better off in your pocket,” she said. 

“Spend some time this summer getting your finances in order, because one of the most effective ways to inject some ongoing relief into your budget is to refinance to a lower-rate lender.

“Even if you didn’t get around to switching last year, all is not lost. Refinancing now could still save you almost $10,000 in interest over the next two years if you switch to a rate under 6 per cent. For borrowers with bigger loans in Sydney and Melbourne those savings could be closer to $20,000. 

“Switching banks on your holiday might seem as appealing as sticking pins in your eyes, but with many lenders now offering applications in less than an hour, it should leave you time to apply and still get to the beach,” she said.

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