Daniel Oertli, CEO of digital lender Unloan, said borrowers might consider refinancing to save money in the face of cost-of-living pressures.

Created just a few months ago, Unloan is backed by Commonwealth Bank’s ‘x15’ venture capital arm, is fully digital and promotes fast application times.

Speaking to Savings.com.au, Mr Oertli (pictured above) said borrowers looking to refinance can complete the process in as little as 10 minutes with the new digital lender.

“The sooner you get a good deal, the better. You really want to look into your home loan and that’s for two reasons,” he said.

“One is the savings in your pocket now. Make sure you find a product that doesn’t offer a honeymoon rate or a fixed rate that comes at a higher interest rate; you really want to be on a product with a constantly low rate.

Mr Oertli said the second reason was to avoid becoming a mortgage prisoner – the risk of which can increase as borrowers neglect their home loan in a rising rate environment.

“There could be an increasing number of people – what we call mortgage prisoners – who can comfortably stick to their current rates, and would indeed save more money by switching to a cheaper rate, but cannot because when assessed for this cheaper rate, the new lender must consider their ability to pay at a much higher interest rate than today,” Mr. Oertli said.

Essentially, a “mortgage prisoner” is a borrower who is unable to refinance and exit their expensive mortgage because the service rate is higher than they could previously afford.

For reference, Commonwealth Bank’s service rates – the higher of the 5.25% floor rate or the announced interest rate plus a 300 basis point buffer – jumped significantly over the course of the year. past year.

Source: CBA Full Fiscal Year Results, 2022

The service cushion has been a point of contention lately, and the central bank of England recently relaxed its mandatory cushion from 3% to 1%.

Pete Wargent, co-founder of BuyersBuyers buying agents, encouraged Australian regulators to follow suit.

“Many of our customers and other borrowers find it incredibly difficult to refinance when lending standards are so stringent, leaving them stuck with unattractive mortgage rates or difficult repayment terms,” ​​Wargent said.

“In reality, the cash rate target is extremely unlikely to rise anywhere near the 5.35% implied in the current monetary tightening cycle.

“Rating borrowers at such extreme outcomes would therefore be pointless, at a time when Australia is on the cusp of full employment and rental vacancy rates are at their lowest for almost 20 years.”

The economics of refinancing

Mr Oertli said refinancing could be one of the easiest and quickest ways to save tens of thousands – over the life of the loan anyway.

For example, Unloan offers a variable mortgage for homeowners at 3.14% per annum (comparison rate of 3.06% per annum*).

On the average home loan size of $610,000, refinancing from a 30-year mortgage rate of 4.00% per annum, for example, would save $294 per month, or $3,528 per year.

“There aren’t many things you can do in about 10 minutes that will put about tens of thousands of dollars back in your pocket. So take a serious look. Do your research,” Mr. Oertli.

However, refinancing is not a free lunch and could cost hundreds or thousands of dollars upfront, negating some savings in the first year.

For example, a new lender will typically require the borrower to repay appraisal fees, set-up fees, or other fees. However, some lenders such as Unloan are now waiving a large portion of these fees.

Disclaimer

The entire market has not been taken into account in the selection of the products above. Instead, a reduced portion of the market was considered. Products from some vendors may not be available in all states. To be considered, the product and price must be clearly published on the product supplier’s website. Savings.com.au, yourmortgage.com.au, yourinvestmentpropertymag.com.au and Performance Drive are part of the Savings Media group. In the interest of full disclosure, Savings Media Group is associated with Firstmac Group. To learn how Savings Media Group handles potential conflicts of interest, as well as how we are paid, please visit the website links at the bottom of this page.

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Harrison Asbury

Harrison is Deputy Editor of Savings.com.au. Prior to joining Savings in January 2020, he worked for some of Australia’s largest comparison sites and media organisations. With a keen interest in economics, housing policy, and personal finance, Harrison strives to provide and edit engaging, thought-provoking, and easy-to-read news and guides.