According to financial product comparison site Canstar, lenders are offering nearly 100 loans of less than four per cent—127 basis points lower than the average variable rate. Hence, a borrower could slice about $740 off monthly repayments of a 30-year $1 million mortgage just by switching from the average variable rate of 4.77 per cent to the new low home loan rates of 3.5 per cent. This also provides them the opportunity to pay off their loans faster by maintaining higher repayments.
"Borrowers who switch to a lower rate but pay more to reduce debt could save themselves tens of thousands of dollars in fees and charges over the life of a loan," said Christopher Foster Ramsay, managing director of mortgage broker Capital Home Loans. "Less debt creates greater flexibility and more options for other saving and investment."
But in lieu of lower home loan rates, lenders have enacted tougher surplus income requirements in order to evaluate a borrower's capacity to repay.
Teachers, nurses, police, firefighters, and prison officials are considered 'dependable' and will not have the value of overtime payments automatically reduced. All other occupations will be reviewed. This also applies to buyers of off-the-plan properties.
With mortgage refinancing being the new battleground for lenders, house buyers choose whether to lock into recently reduced two-year fixed rates or hold out in expectation of additional cuts.
"Borrowers comfortable with the flexibility of a standard variable rate might just as well stay put and see what the future brings," said Jessica Darnbrough, Mortgage Choice spokesperson.
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