Refinancing has greatest impact in mortgage belt suburbs

Reduce Home Loans mortgage belt suburbs

BUYERS looking to refinance their homes stand to see the greatest savings if they own property in Australia’s “mortgage belt” suburbs, such as Point Cook, Craigieburn or Tarneit in Victoria.

New research from Reduce Home Loans has identified the country’s top 20 suburbs based on how much Australians could save if they refinanced.

“Some borrowers who have reverted, or will soon revert, from a fixed to a variable loan might find themselves on a higher interest rate, which, of course, would be concerning. It’s important for those borrowers that can afford the rollover rate not to be complacent. That’s because the Reserve Bank is likely to keep increasing the cash rate, which will translate into much higher mortgage rates,” said Josh Beitz, general manager at Reduce Home Loans.

“Lenders always assess borrowers at higher interest rates, so as rates keep increasing, people’s borrowing power will be reduced. As a result, many borrowers will be locked out of refinancing.”

Beitz cited these reasons as why borrowers should seriously look into refinancing now to a comparable loan with a lower interest rate, as the RBA is set to continue its trend of hikes for the time being, which could leave many as so-called “mortgage prisoners”, unable to keep up with rising interest rates.

“The interest rate gap between higher-rate and lower-rate loans is already large, and is likely to keep growing as interest rates keep increasing,” said Beitz.

Establishing these “mortgage belt” suburbs included estimating the number of houses under mortgages per suburb and assuming that, as of June 2019, buyers purchased a house and paid the suburb’s median house price, borrowed 90% of that price and took out a three-year fixed loan at the average rate at the time of 3.84%.

“All the suburbs on this ranking are showing life-of-loan savings of at least $69,000. That’s based on the assumption that borrowers have 27 years left on their mortgage and would be refinancing from an interest rate of 4.75% to 3.00%. It goes to show how powerful refinancing can be,” added Beitz.

The vast majority of suburbs to make the list for savings as at June 2022 were located in Victoria, with 14 on NSW’s four and Western Australia’s two.

Point Cook in Melbourne took the number one spot in the list, with 11,754 houses with a mortgage (according to the 2016 Census) and the median house price rising from $653,691 in June 2019 to $735,000 in June 2022.

With a starting mortgage (90% LVR) of $588,322 at June 2019, there would be an estimated $555,102 outstanding at June 2022l with LVR at 74% and equity at 26%.

Looking at Point Cook, refinancing from a 4.75% loan to a 4.00% loan could mean $239 in savings per month or $77,467 over 27 years.

While refinancing from a 4.75% loan to a 3.00% loan could mean $542 saved each month, or $175,501 saved over 27 years.

“[R]efinancing now could potentially add up to a saving of tens of thousands or even hundreds of thousands of dollars over the life of the loan. More importantly, it might make the difference to some people being able to keep their home or being forced to sell it in a depressed market,” concluded Beitz.

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