Refinancing savings are plunging as rates rise – here’s how to stay ahead

Report focuses on insights from refinancers as mortgage stress drives record numbers

Homeowners are refinancing as mortgage stress takes hold – and they're taking whatever savings they can get.

These are just some of the findings from Finder's Housing Market Report which was released today (Thursday 12 October).

Finder surveyed more than 1,000 borrowers who have either recently refinanced or are planning to.

Mortgage stress key source of refinance motivation

It probably comes as no surprise that the key reason people are refinancing is down to financial stress. 60% of borrowers who had recently refinanced said they were experiencing mortgage stress in the 3 months up to them refinancing. According to the ABS, the average refinancer had an outstanding loan balance of $507,053, which is a 28% increase from 2019.

But even after refinancing 49% said they remained stressed about their home loan. Rising rates and the cost of living crisis is having such a detrimental effect on households that refinancing isn't enough to relieve the pressure.

Refinancers settling for savings of $71 a month

The rising costs also mean borrowers are taking savings where they can get them, even if they're minimal. On average, borrowers have refinanced to an interest rate 23 basis points lower than their original rate.

For context, the Reserve Bank of Australia (RBA) has lifted the cash rate by 400 basis points since April 2022.

Some refinancers are finding big savings however, as on average, respondents claim to have saved $331 per month.

The report also found that refinancers don't necessarily have the knowledge to refinance confidently, which possibly explains why they are refinancing for such a low saving. Despite having gone through the home loan process at least once before, only 19% said they were confident in their knowledge of refinancing.

How to get the most out of your refinance

The latest figures from the ABS show that in August there was a 10% increase in the number of refinancers compared to August 2022. Borrowers are continuing to refinance more than a year after interest rates began to rise.

If you're a borrower looking to refinance soon, here are a few ways to get those higher savings:

1. Compare rates across the market.

Make sure you have a full understanding of what interest rates are out there.

2. Work out your new repayments.

Use our mortgage repayment calculator to see how much you could save by switching to one of the lower rates in the Finder database, compared to your existing (or incoming) interest rate.

3. Speak to your existing lender.

Your lender doesn't want to lose your business. Once you understand what interest rates are around and know your potential repayments, see if you can negotiate a better rate with your lender. Factor in the break fees that you wouldn't have to pay.

4. Consider the fees.

A new lender might look like they have better rates and therefore cheaper repayments, but factor in any fees that might be applicable. These are ongoing fees, an application fee, an offset account fee or exit fees.