What you need to know about refinancing in 2020

Finances, at a macro and micro level, have never been as important to Australians as they are today.

As a result, at Lendi we’ve witnessed a huge surge in refinance activity in recent months.

Our team of experts decided to deep dive into the stats, looking at owner occupier loans settled on the Lendi platform over the first six months of 2020 to reveal five key insights every homeowner should know.

Here are our top 5 insights for homeowners in 2020:

1. Interest rates charged by Big 4 Banks continue to be higher than non-big 4 banks

Our study of owner occupier loans settled by Lendi over the first six months of 2020 shows that median interest rates charged by the likes of NAB, CBA, ANZ and Westpac were, on average, 8 basis points (bps) higher than the other banks.

The premium on big four interest rates peaked for loans settled in March at 12 bps higher than the others.

With the rising competition in the home loan market, even the big four banks have revised their offers. Banks, big and small, are now competing to secure good customers from a growing refinance market and a smaller pool of new purchase customers.

• Related: How to negotiate with your lender
• Related: Why even a 0.5% interest rate change matters

From the big four, we've seen cashback offers and record low fixed rates. In fact, their median rates were 20 bps lower for loans settled in April, when compared to March. In April, they were even undercutting the smaller lenders slightly.

However, we witnessed a return to the status quo in the last few months as competition intensified and smaller lenders ended June with lower median rates.

2. It takes longer to refinance your loan with the big four banks

The big four banks took significantly longer to process loans for customers.

During the first half of 2020, the average time to refinance your loan with the big four banks was 54 days, as opposed to 36 days with non big four lenders.

If you are thinking about refinancing and need the process to be done quickly, it might be worth exploring options with smaller lenders.

3. By refinancing, you can save on average $2295 a year

Lendi data shows homeowners were able to reduce the interest rate on their owner occupier home loans by an average of 96 bps by refinancing during the first half of 2020.

On a loan of $407,000 this represents an annual saving of $2,295.

That’s $2,295 in unnecessary interest payments you’re putting into the banks’ pockets every year. In the current economic climate, it’s important to keep on top of your finances and cut unnecessary spending where possible.

4. Banks slow to discharge loans is costing Aussie homeowners

When you refinance your home loan, a mortgage release or discharge needs to be recorded to legally release your current lender from mortgage obligations.

Although our data shows that the discharge time can be anywhere between 5 to 25 days, lenders take on average 16 business days to discharge a loan before a customer can refinance.

A slow discharge time is not only frustrating for the customer, it also foregoes savings on interest repayments whilst waiting for the discharge request to be approved by their outgoing lender.

Our analysis of ABS data shows over $2.7 million in interest savings were left on the table by homeowners during the discharge process in May alone.

5. Even before social distancing Australians were embracing online home loan processes

Even prior to the pandemic, here at Lendi we were seeing an increasing number of borrowers embracing the online home loan process.

But with social distancing and lockdown measures in place, we have noticed a significant shift towards online home loan applications.

Lendi saw an increase of over 50 per cent in the volume of loans settled on its platform in the three months to the end of June 2020, when compared to the same time last year.

If you are a homeowner who hasn’t reviewed their rates in the last 6 to 12 months, now is the perfect time to do it. You can review your current home loan interest rate here.

Got a home loan question? Just ask!

We're here to help. Get free expert advice at a time that suits you. Choose a time to chat with a Home Loan Specialist here

The information in this post is general in nature and should not be considered personal or financial advice. You should always seek professional advice or assistance before making any financial decisions.