How to beat the rates hike and save hundreds off your mortgage

Aussie mortgage holders could within days be hit with rates hikes - but there are simple steps you can take to emerge no worse off.

Tim McIntyre

3 min read

April 28, 2022 - 5:30PM

News Corp Australia Network

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Mortgage holders could offset multiple predicted rate hikes — and be no worse off financially than now — by switching lenders, or just asking their current bank for a better deal

Reserve Bank of Australia (RBA) data shows the average owner-occupier on a variable loan is paying 2.92 per cent, while RateCity research shows the lowest variable rate on the market is currently 1.79 per cent, being offered by three lenders.

The 1.13 per cent difference is the equivalent of more than four standard RBA rate movements and switching from the average to the lowest would save $282 a month for a borrower with $500,000 of debt and a 25-year loan term.

RateCity research director Sally Tindall said despite talk about rate rises, lenders were still offering discounted variable rates.

Australian mortgage holders could actually save money despite the feared rates rises.

“We’ve still got 32 lenders offering at least one variable rate under 2 per cent,” Ms Tindall said.

“And while the lowest rates might have all sorts of terms and conditions, there are plenty more out there offering decent rates that people will hopefully be eligible for.”

She said the best refinance rate deals usually went to borrowers with lower loan to value ratios (LVRs) than the standard 80 per cent.

And recent value growth meant Aussies who had been paying off mortgages for two years or more might be in a better negotiating position than they thought.

“When you refinance, they revalue your home and a lot of people will find they own a lot more of their home as a percentage than they realised,” she said.

Many property owners have not refinanced in some time.

For borrowers looking to lock in fixed rates, Ms Tindall said “the ship had sailed” on getting the best deals, with major banks now offering rates of 4 per cent plus for three-year fixed rate products.

Loan Market broker Jacob Decru said “literally 100 per cent” of the calls he was receiving from clients were expressing concern about interest rate rises.

Often these clients had not refinanced for some time, so not only were they paying too much, but were unaware that multiple rate rises would simply take rates to where they were just before Covid.

“There’s this whole thing about rate rises, but prior to Covid, say March 2020, that’s where rates were. They then came down very quickly and are now going to make their way back up, Mr Decru said.

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By switching to a better deal, but continuing to make their existing, higher repayments, he said his clients could create a safety net for future rate rises.

“Also, you may be able to get a cash rebate for switching, which you can put into your savings for rate rises if you need to,” he said.

Mortgage Choice broker James Algar said mortgage holders should also consider asking for a better deal, as lenders do not want to lose existing customers.

“If we can get some of these clients down to the low 2 per cent rate mark now, that’s buying them 70 or 80 basis points in future rate rises,” Mr Algar said.

He suggested borrowers review their situation every 12 months.

Canstar money expert Effie Zahos said borrowers can also find savings on household items like car insurance, energy, credit cards and internet providers to offset rate rises.

“I did some analysis on the five most common bills in the house and just by moving from the average rate to the cheapest in the market, I could find $500 per month in savings there,” she said.

Impact of switching to a lower rate

Based on an owner occupier with $500k debt and 25 years remaining

Current variable rate	Current monthly repayments
Current existing variable owner-occupier rate	2.92%	$2350
Lowest variable rate (offered by 3 lenders)	1.79%	$2068
Difference	1.13%	$282

Source: RateCity.com.au. Based on an owner-occupier paying principal and interest with a $500,000 owing and 25 years remaining, starting at the average variable rate of 2.92% as recorded by the RBA.