50% of fixed-rate loans to expire in September, Aussie warns

Despite the Reserve Bank of Australia’s (RBA) pause in April, the central bank has lifted the cash rate by 350 bps since May 2022, increasing the financial pressure on Australian households.

Aussie Home Loans data, from more than 1,500 mortgage holders, showed that Australian households’ medium net surplus income had fallen by 28 per cent since the beginning of the year on the back of rapid rate rise.

In addition, the data showed a drop in the maximum median borrowing power by more than $100,000 (or 11 per cent) between January and September 2022.

As household wealth has already shrunk for many Australias and those on a fixed-rate mortgage are expected to feel a similar blow in the coming months, Aussie Home Loans has seen a surge in refinances.

Almost half of NSW mortgage holders had refinanced since January, marking a total of $422.53 million refinanced, followed by 22.75 per cent of Queenslanders and 19.5 per cent of Victorians, Aussie data revealed.

This reiterated the findings from the Australian Bureau of Statistics (ABS) for February 2023 that revealed refinances for owner-occupied home loans hit a “new record high of $13.6 billion”, as borrowers switch lenders in search of lower interest rates.

Chief distribution officer at Aussie Home Loans, Brad Cramb, said by refinancing, home owners can potentially save money on their monthly repayments and free up cash for other expenses.

“Your home loan interest rate should never be a set and forget option. It can be one of the most effective tools for home owners to help reduce their financial burden and achieve greater financial stability,” Mr Cramb said.

“Just as households review their daily budgets, utilities in order to save on their family’s bottom line, refinancing is just — if not more — important to regularly revisit.”

On average, the mortgage broker had been able to help households with a 0.68 per cent reduction over the past quarter.

For example, for a home owner with current average home loan interest rates at 5.82 per cent (as at March) on a mortgage of $500,000, the difference can equate to a monthly savings of $202, a yearly saving of $2,354, and a life of loan difference of $60.851, the data showed.

As Australians’ borrowing power decreases, Mr Cramb warned more Australians could find themselves in ‘mortgage prison’ with higher difficulty securing a new loan or successfully refinancing an existing one.

“Fixed Rate Mortgage holders are likely to be some of the most vulnerable in this situation as they roll off their current rate, requiring added expertise to assist their financial situation,” he said.

But it’s not just fixed-rate mortgages that will feel the pinch, with Aussie urging remaining home owners on variable loans to regularly monitor their current interest rates in order to avoid the ongoing impact of rate rises on a large proportion of home owners.

[Related: Borrowers scramble to compare home loan rates]