RateCity.com.au has revealed in its recent research that average borrowers who haven’t refinanced since the Reserve Bank of Australia (RBA) began raising rates have incurred more than $24,000 in additional interest. The staggering figure underscores the impact of thirteen consecutive rate hikes throughout 2022 and 2023, a scenario that the RBA didn’t foresee happening until 2024.
According to the study, a standard borrower with a $500,000 mortgage at the onset of the rate increases would have paid an additional $24,598 in interest from May 2022 to December 2023, presuming they haven’t renegotiated or refinanced their loan.
While expectations were set for the RBA to maintain the cash rate during its last meeting of the year, the reality for borrowers has been grim. Big four banks – CBA, Westpac, and ANZ – are predicting the cash rate to have reached its peak at 4.35 percent, though NAB foresees one more hike in February 2024 to 4.60 percent.
With such forecasts in mind, the Report highlights the urgency for borrowers to explore refinancing options. The difference in repaying a loan at the potentially highest rate of 7.11 percent as opposed to the rates that remained the same at 2.86 percent has put Australians in a predicament where the monthly mortgage could be pushed by an extra $76, summing up to a $1,287 increase across all rate hikes.
Sally Tindall, RateCity.com.au’s research director, advised borrowers to be proactive despite a potential pause in rate hikes stating, “Another cash rate pause does not mean people can let the budget go rogue over summer.” Tindall shared her insight into the ongoing financial struggle for many, resulting from the unexpected extent of the RBA’s rate hikes.
She added, “The cash rate is a hammer not a chisel. Some households have slipped through relatively unscathed while others have moved from physical lockdown to financial lockdown.”
The research also emphasizes that despite the high rates, there are still opportunities to save. With over 26 lenders on RateCity.com.au offering rates under 6 percent (excluding introductory offers), refinancing could save the average borrower nearly $10,000 over two years, even after accounting for estimated switching costs of $1,150.
Tindall urges borrowers to utilize the holiday period to gear up for the year ahead, “Borrowers should spend time over the holidays setting themselves up for 2024 by refinancing to a different lender.” She pointed out that while over 671,000 loans had been refinanced since the hikes began, there are still millions who could benefit from switching lenders. By negotiating with banks or choosing to refinance, homeowners could secure significant financial relief in anticipation of an uncertain economic climate.
The sentiment is encapsulated by Tindall’s final advice, “The lowest rates are often reserved for new customers, so if you want the best BBQ brag this summer, you may need to go the whole hog and refinance.” The message is clear, with the interest rate landscape proving to be challenging, now might be the ideal time for borrowers to seek out better deals.