The simple trick to stop borrowers being ripped off by a bank as interest rates keep rising

A borrower paying off a unit has revealed how he’s saved thousands of dollars a year in mortgage payments — even before interest rates rise — simply by switching banks.

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

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

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

The 31-year-old Lock, who now lives in Brisbane for work but pays off a Hobart apartment he rents out, said a 0.7 percentage point difference gave him a buffer against the Reserve Bank’s 12 rate hikes since May 2022 to catch.

“I’m always looking for the most competitive offer,” he told Daily Mail Australia.

“I’m not a ‘rent vestor’ per se – I bought my house, I lived in it in Tassie and now I’ve moved, this is just the circumstance I’m in.”

Three of Australia’s Big Four banks have now eased their refinancing rules, with NAB joining Westpac and the Commonwealth Bank in being more lenient.

Only ANZ announces even more liberal rules.

Like many borrowers, the Tasmanian who now lives in Queensland had a 20 per cent down payment when he bought a two-bedroom apartment in the Hobart suburb of West Moonah for $278,000 in 2016.

The Commonwealth Bank’s offer of 3.03 percent would have meant $942 per month in principal payments, but switching to Westpac brought that down to $856.

That equates to savings of $86 per month or $1,032 per year.

For a borrower with an average $600,000 mortgage, 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 a year from now.

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

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

Andy came off a five-year discount rate in April 2022 when the Commonwealth Bank offered him a variable mortgage rate of 3.03 percent.

The Commonwealth Bank now charges 6.44 percent for a new borrower with a 20 percent down payment 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 per month or $3,594 per month — which works out to $2,100 per 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 borrowers like him have more power to negotiate better mortgage rates when they refinance.

“I’m not an expert on finances, but I can imagine that many people who have owned a home for a few years have probably gone up in value quite a bit,” he said.

“It’s not your first deposit, it’s your current wealth.”

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 switching, compared to 69 percent of all borrowers.

Financial comparison website InfoChoice’s money analyst Dominic Beattie said a “refinancing tsunami” would mount, with the Reserve Bank estimating that 880,000 fixed-rate mortgages will mature in 2023.

“With thousands of pandemic-era fixed-rate mortgages yet to experience the dreaded transition to the brutal realities 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 whether a borrower is able to cope with a three percentage point increase in variable mortgage rates.

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

National Australia Bank will relax its maintenance rules for borrowers with a mortgage of at least 20 percent from July 21.

Those with a good track record of meeting monthly repayments are allowed to refinance by extending their loan term or borrowing one percent more to cover their refinancing costs.

RateCity research director Sally Tindall said this would prevent borrowers from being trapped in a mortgage prison, especially if they came from a fixed rate of 1.92 percent and faced a higher variable rate of 7.68 percent if interest rates rise again.

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

“Helping borrowers in financial stress to lower interest rates can often make the difference between keeping up with their repayments and defaulting on their loan.”