Lenders target refinancing as loans market heats up

By Terry Ryder, 27th May 2011

More lenders are targeting the refinancing market, one of the few growth areas in the home lending industry. This follows UBank's UHome Loan variable interest rate cut, resulting in one of the best deals for home loans on the market.

Amid a generally subdued home loans market, financial comparison website RateCity says the only area of growth (compared to 12 months ago) is refinanced home loans. ABS data for March shows a 5% annual increase in refinanced home loans.

There were 658 more borrowers who refinanced in March compared to 12 months ago, while total home loans are at their lowest levels in a decade, following a 5% percent fall.

In Victoria 34% of all home loans taken out in March were refinanced home loans, followed by Queensland and Western Australia, both with 30%. In New South Wales, 29% of home loans were refinancing loans, while Tasmania, Northern Territory and Australian Capital Territory were all around 26%.

Damian Smith, RateCity's CEO, says lenders have begun to target refinancers.

"UBank has set the benchmark for the best home loan rates in Australia, by reducing the waiting time to receive their 0.20 percent loyalty discount from three years to immediately on taking out their UHome Loan,” Smith says.

"This home loan is available only to refinancing borrowers who want to switch from another lender and it's cleverly targeted at this market.”

UBank is currently offering their new customers a 6.59% interest rate for the life of the loan, which is 52 basis points below the average basic variable rate of 7.11% according to RateCity. For a $300,000 mortgage, this difference would equate to a saving of $98 in monthly repayments.

While the UBank UHome Loan is one of the best deals on the market, according to RateCity, there are restrictions such as:

*It's available only to refinancing customers - not first home buyers

*Offer ends on 30 June

*Approvals must be completed by 31 July

*Property must be over 50 square metres

*Value of the property must be between $100,000 and $1 million

*You can borrow only 80% of the property's value.

"UBank is offering a great deal and while many mortgage borrowers can benefit from switching, it's not necessarily the best option for everyone," says Smith. "For instance, there are a lot of borrowers out there who owe more than 80% of the value of their home so this rules them out of the UBank deal.

"That's why it's important to compare deals and work out the real costs involved in switching before jumping ahead."

ENDS