Aussie refinancers opt for split mortgage

According to research undertaken by comparison website Finder, 20 per cent of Australians now prefer a mortgage with both variable and fixed interest rates.

The survey of 1,000 people, which asked how they would structure their mortgage if they were to refinance, found that 19 per cent would refinance to a variable loan while 17 per cent would prefer to lock into a fixed rate for a set period of time.

The remaining 43 per cent said they were unsure if they would opt for a fixed or variable rate.

Furthermore, the survey found that the younger generations value flexibility the most when it comes to their home loans.

Over a quarter of Generation Z – or 27 per cent – would split their mortgage, more so than any other generation, while Millennials are the most likely to choose a variable loan (23 per cent).

On the other hand, Baby Boomers were most likely to refinance to a fixed rate (19 per cent), according to the research.

Graham Cooke, insights manager at Finder, said that fixed-rate loans can come with benefits and risks.

“With the cash rate set to remain at 0.25 per cent for some time, it’s unlikely the big banks will lower their standard variable mortgage rates any further for now,” Mr Cooke said.

“This means fixed-rate loans are back in vogue. For some home owners, locking in their rate for a year or more may offer greater savings than a variable rate would.”

Mr Cooke noted that lenders are offering “rock bottom” rates, with someone like Easystreet offering as low as 1.95 per cent, while Reduce Home Loans are offering an even lower variable rate of 1.89 per cent.

By state, the survey found that Victorians are the most likely to choose a variable rate (at 23 per cent), while 20 per cent of NSW respondents chose this option.

Only 12 per cent of respondents in Queensland were interested in a variable rate, with 25 per cent opting for a split loan and 21 per cent choosing a fixed-rate loan.

Mr Cooke advised home owners to consider their financial objectives before restructuring their loan.

“There can be hefty financial penalties for breaking a fixed-rate loan early, so make sure this is something you’re prepared to commit for that one to five-year period,” he warned.

“Otherwise, a split loan or variable loan may be your safest bet.”

Recent research by online broking platform Lendi revealed that refinancers looking to secure a better deal amid cuts to the official cash rate by the Reserve Bank of Australia (RBA) and the coronavirus pandemic have reduced their mortgage rates by an average of 96 bps.

This equates to around $2,295 in annual savings for borrowers with an average loan size of $407,000.

However, extracting data from the Australian Bureau of Statistics, Lendi noted that over the first five months of 2020, borrowers collectively lost over $10 million in interest savings while waiting for their discharge request to be processed.

This was caused by lenders taking an average of 16 business days to process a discharge request over the six months to 30 June.

The Reserve Bank of Australia also noted this month that “there had been a large amount of refinancing activity, with a greater-than-usual share of borrowers moving to fixed-rate home loans”.

[Related: Over 80% of refinancers switching lenders]

Malavika Santhebennur is the features editor on the mortgages titles at Momentum Media.

Before joining the team in 2019, Malavika held roles with Money Management and Benchmark Media. She has been writing about financial services for the past six years.