Australians are rushing to borrow, but are they as keen on refinancing their home loans?

In recent months Australians have been flocking to take out new mortgages in order to enter the property market, borrowing at some of the highest levels we’ve seen in years.

In fact, data released on Monday by the Australian Bureau of Statistics (ABS) revealed that owner occupiers and investors took out a mammoth $23.7 billion worth of new loans in January alone.

That’s the number in real terms and not seasonally adjusted, but it's $6 billion higher than January 2020 and almost $10 billion higher than January 2019.

But is there a similar appetite for action among homeowners who already have a mortgage?

According to the ABS, over $15.6 billion worth of loans were refinanced in January - a figure which is actually a touch lower than the $15.8 billion of loans that were refinanced during the same period in 2020.

As the graph below shows - with the exception of May 2020 - the amount of new loans taken out tends to be higher than the amount of loans refinanced, though the disparity between the two remains quite significant at present.

Are borrowers missing a trick by failing to switch?

While these are certainly big figures, they don’t paint a complete picture when it comes to the number of mortgages which have been switched by homeowners recently.

Crunching lending figures from the Australian Bureau of Statistics and APRA reveals that around 472,597 mortgages have been refinanced in the last 12 months, which is about 8% of the six million mortgages (roughly) in Australia.^^

According to Mozo Banking Expert, Peter Marshall, it’s not surprising that the vast majority of mortgages haven’t been refinanced of late though.

“All of our research in the past has shown that most people just set up their mortgage and leave it be as much as possible,” he said. “So given that, that 8% figure is actually quite a high to me.”

“There are plenty of reasons for people to review their current offers though. Lenders are offering very low fixed rates and cashback as incentives, plus rates have changed a lot - particularly in the last year where they’ve come down quite sharply, so there’s now a lot more competition at the lowest end of the market.”

For context, in June 2019 the average variable rate for owner occupiers in the Mozo database was 4.31%. However, six Reserve Bank cuts and thousands of lender rate reductions later that average rate now sits 102 basis points lower at 3.29%.

So, the remaining question is, how much could you save by refinancing your home loan?

Say you're currently paying a rate of 3.60% on a $300,000 balance with 15 years left on your loan - your mortgage repayments would be $2,159/month and you would pay a total of $88,694 in interest over the remaining loan period.

However, if you were able to switch to a rate of 2.60% your repayments would drop to $2,015 a month and the total interest you’d pay over the loan would be $62,614 (or $26,080 less).

As Marshall says though, switching loans might not be the best option for everyone.

“Refinancing will be easier if you've got a steady income and your loan-to-value ratio is meaningfully under 80%. If it’s over 80% it may not be such a good idea to move because you’d probably have to pay lenders mortgage insurance again as that doesn’t get transferred.”

“If you’re on a fixed rate you’ll probably want to wait until the end of the fixed rate period before considering a move because the lender will charge break cost which can be significant depending on how much rates have shifted since you took your loan out.”

RELATED: ME Bank report: Homeowners more comfortable, but how about renters?

Interested in weighing up your home loan options with the view to making the switch?

Head on over to the Mozo refinance comparison table to view a range of loans, or get started right away by checking out some of the hot offers in the table below.

^^Refinancing figures sourced from ABS Lending Indicators January 2021 and mortgage numbers sourced from APRA’s February 2021 loan deferrals report.