‘She’ll be right attitude’ costing Aussie mortgage holders long-term

New research from Mozo for the 2024 Home Loan Report discovered that a startling percentage of mortgage holders think refinancing isn’t worth the effort when it could save them tens of thousands.

A nationally representative survey of over 2,550 Australian adults found that 74% of home loan borrowers believe refinancing is too much of a hassle and that it’s easier to just stick with the same provider.

Mozo finance expert, Rachel Wastell, says Australian borrowers are making a poor choice by burying their heads in the sand instead of refinancing.

“Mortgage holders with a she’ll be right attitude could be paying tens of thousands of dollars more in interest than those who switch to a lower rate,” said Wastell.

It’s a problematic attitude because Mozo also found that those who compare home loans every six months have an average variable rate that is 0.38% lower than those who haven’t compared since getting their home loan.

As you can see, borrowers who compare more often typically have a lower interest rate on average. This is because variable rates change frequently, especially when the Reserve Bank of Australia (RBA) plays around with the cash rate.

Just two years ago, home loan interest rates were at historic lows when the RBA pushed the cash rate down to 0.10% to kickstart Australia’s economic recovery from the pandemic.

The unusually sharp 4.25% increase in the cash rate since May 2022 would’ve bumped up most people’s rates and repayments considerably – unless they had the foresight (or luck) to get a fixed home loan for a few years.

While you might look at the $118 per month saving that a 0.38% lower interest rate could get you and think, ‘Geez, what’s the big fuss?’, calculating the world of difference it makes, in the long run, should convince you to take a second look at your rate.

"...a rate difference of less than 1% can equate to five figures in savings..."

The long-term ramifications of paying a higher interest rate

“Home loans are decades of debt and interest compounds, so a rate difference of less than 1% can equate to five figures in savings over a 25-year loan term,” said Wastell.

Using a mortgage repayment calculator , we can work out that those who compare interest rates every six months, at a rate of 6.14% p.a., could wind up paying $479,330 in total interest over 25 years. That’s a lot, right? It’s almost the same as the amount they borrowed in the first place.

Let’s see how it works out for those who haven’t compared rates since getting their home loan, who are charged, on average, 0.38% more… At a rate of 6.52% p.a., the total interest you’ll pay after 25 years is $514,686. That’s an extra $35,356 that goes straight to your lender, instead of towards a deposit on an investment property, or into your superannuation .

Sure, you might have to cover some additional costs when you refinance, such as discharge and valuation fees, but these are typically negligible compared with what you could save on interest over time.

So, if you’re one of the 74% of Australians who haven’t shopped around for a new home loan since buying your place, take this as a sign to compare refinance rates and see if you can find a cheap home loan that works for you.

You might find the best home loans have exactly what you’re looking for, or you might want to learn about the different home loan features you’ll encounter during your home loan comparison before you dive in.

Take a gander at these featured home loans to get started. Do any of these beat your current lender’s offer?