- Variable home loans are usually determined by the RBA's cash rate
- A variable home loan can make refinancing your home loan a more viable option
- Caution should be exercised when refinancing
Home loans can come from a variety of lenders including the major banks such ANZ, NAB, Commonwealth Bank (CommBank), and Westpac, but also smaller banks, credit unions, building societies, and non-banks.
While not an exhaustive list, some can tend to offer more competitive rates than others.
“Typically non-bank lenders – those that don’t have a full banking licence and can’t accept deposits from the public – tend to offer lower rates than banks,” Canstar told The Property Tribune.
“But as rates continue, the cost of funding for non-bank lenders climbs higher than it will for banks. One reason for this is that non-banks don’t have access to cheap deposits they can call on for funds, while banks that offer savings accounts do.
“This is happening as the gap between bank and non-bank rates has been closing with the non-banks only having a 0.04% advantage over the average variable rate of the banks and 0.32% over the major banks,” added Canstar.
Average variable home loan rates (owner-occupier, $500,000, 80% LVR, P&I) and cash rate
The comparison between major banks, banks, and non-banks can also vary, with research conducted by Bard for 16 June 2023 finding the majors provided the best rates, while BingAI found non-banks delivered the best value home loans. This result should of course be taken with a grain of salt.
| Lender Type | Average Rate |
|---|---|
| Major banks | 6.04% |
| Banks excluding majors | 6.66% |
| Non-bank lenders | 6.89% |
Generated by Bard.
Time to refinance?
In general, it is easier to refinance on a variable rate home loan than a fixed rate home loan.
A fixed rate loan will typically see large penalties for paying off loans early, refinancing, selling the property, or making extra repayments.
“Generally if you’ve had your loan for at least 2 years, owe less than 80% of the property value and have a variable rate then it’s worth checking to see if refinancing is a good option,” Home Loan Experts‘ Otto Dargan told The Property Tribune.
“The people with the worst rates tend to be people who are very loyal to their bank and who haven’t compared their options in a decade or so.”
When refinancing, Dargan said rates are not the be all and end all.
“Consider your long term requirements, objectives, and if you will need more funds in the future. It’s best to plan for the future now, as if you need money then a bank often won’t give it to you.
“A good example is that it’s easier to set up a buffer of excess funds before having a baby than it is afterwards when your expenses are higher and income has dropped.”
What if I can’t refinance?
In some cases, you can renegotiate with your existing lender, said Dargan.
“The process for doing this varies and some lenders will not negotiate at all. Your mortgage broker can take care of this for you.”
Among other things to watch out for when refinancing, different lenders will have different assessment criteria.
“Be aware that when you refinance, the new lender will have their own loan assessment criteria and process, and you will need to gain their approval for a home loan,” Mozo‘s Peter Marshall told The Property Tribune.
“This is particularly important if your financial situation has changed since you got your loan – is your household getting less regular income for any reason or have your expenses increased?”
Dargan noted that there could be drawbacks to extending a loan term when refinancing.
“Often when people refinance they set up their new loan with a 30 year term. However if they have already had the previous loan for 5 years then this means they’ve extended their loan out to 35 years which may cost them much more even if the rate is lower.
“It’s important to either keep the original loan term, pay extra or be aware that having a longer term means a higher cost in the long run.”
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