The simple trick to prevent borrowers from being scammed by a bank while interest rates keep rising

A borrower paying for a unit has revealed how he saved thousands of dollars a year in mortgage payments, even before the rate went up, simply by switching banks.

Engineering researcher Andy Lock was coming out of a five-year discount rate in April 2022 when the Commonwealth Bank offered him a variable rate home loan of 3.03 percent.

That was when the Reserve Bank’s cash rate was still at a record low of 0.1 percent.

But by switching to Westpac and refinancing, he was able to get a 2.3 percent rate plus a $3,000 cash bonus.

Lock, 31, who now works in Brisbane but is paying for a Hobart unit he is renting, said the 0.7 percentage point difference gave him a cushion to deal with the 12 Reserve Bank rate hikes since May 2022.

“I’m always interested in finding the most competitive offer,” he told Daily Mail Australia.

“I’m not a ‘rental investor’ by design – I bought my house, lived in it in Tassie and now I’ve moved on, this is where I find myself.”

Three of Australia’s big four banks have now relaxed their refinancing rules with NAB joining Westpac and Commonwealth Bank in being more lenient.

Only ANZ has yet to announce more liberal rules.

Like many borrowers, the Tasmanian who now lives in Queensland had a 20 percent deposit when he bought a two-bedroom unit in West Moonah, a Hobart suburb, in 2016 for $278,000.

Commonwealth Bank’s offer of 3.03 percent would have meant paying $942 a month in rebates, but by switching to Westpac, that dropped to $856.

That equated to a savings of $86 a month or $1,032 a year.

For a borrower with an average mortgage of $600,000, that would have meant the difference between paying $2,540 a month or $2,309.

That $231 monthly difference would add up to $2,772 over a year.

Since then, the Reserve Bank has raised rates 12 times to an 11-year high of 4.1 percent, pausing in July for the first time since April.

The four percentage point increase since May 2022 has marked the most aggressive pace of monetary policy tightening since 1989, with inflation still high.

Andy was coming off a five-year discount rate in April 2022 when the Commonwealth Bank offered him a variable rate home loan of 3.03 percent.

Commonwealth Bank now charges 6.44 percent for a new borrower with a 20 percent deposit compared to Westpac’s variable discount rate of 5.99 percent.

For a borrower with a $600,000 mortgage, that would mean the $175 difference between paying $3,769 a month or $3,594 a month, adding up to $2,100 a year.

Mr. Lock’s unit cost $278,000 in 2016, but now his suburb has a median apartment price of $461,890, CoreLogic data showed.

This means that borrowers like him have more power to negotiate a better mortgage rate when they refinance.

“I’m not a financial expert, but I would imagine that a lot of people who had houses for a few years have probably gone up in value a lot,” he said.

‘It’s not your initial deposit, it’s your current capital.’

An InfoChoice survey of 1,000 borrowers found that millennials, ages 27 to 42, were the most likely to refinance, with 78 percent of them considering a move compared to 69 percent of all borrowers.

Financial comparison website InfoChoice money analyst Dominic Beattie said a “refinancing tsunami” would intensify, with the Reserve Bank estimating 880,000 fixed-rate mortgages due by 2023.

“With thousands of pandemic-era fixed-rate mortgages yet to experience the dreaded handover to the brutal reality of current interest rates, there is much more to come from this wave of refinancing,” he said.

The Australian Prudential Regulation Authority, the banking regulator, requires banks to assess a borrower’s ability to cope with a three percentage point increase in variable mortgage rates.

While the rules remain strict for borrowers taking on new debt, Westpac, Commonwealth Bank and now NAB have relaxed the rules for those looking to refinance.

National Australia Bank is relaxing its servicing rules from July 21 for borrowers with a minimum 20 per cent mortgage deposit.

Those with a good track record of meeting monthly payments will be allowed to refinance by extending the term of their loan or borrow an additional 1 percent to cover their refinancing costs.

RateCity’s director of research, Sally Tindall, said this would prevent borrowers from being locked into mortgage prison, especially if they exited a 1.92 percent fixed rate and faced a higher “reversal” variable rate. of 7.68 percent in case the rates rise again.

“NAB has followed in the footsteps of Westpac and CBA in opening the door for select mortgage prisoners,” he said.

‘Helping borrowers in financial stress to reduce rates can often be the difference between staying on top of their payments or defaulting on their loan.’