Gidday,
A couple of nights back, Today Tonight aired a programme called mortgage wars featuring two brokerages offering different types of refund home loans.
Love or hate (yes, I know brokers, you mostly hate) brokers offering refund home loans, Wayne Ormond stated that borrowers change lenders every 3.5 years.
Is an average exit of 3.5 years realistic?
What's the story/experience? I have crunched the numbers for the different brokers that I know of offering refunds and posted them on one of my sites refund home loans. However I can't find any industry reference to average mortgage life being that short.
Does any one have anythng to help?
It's probably close to the mark. My recent situation is:
Mortgage 1 – 4 yrs 8 mths
Mortgage 2 – 1 year 8 months
Mortgage 3 – 4 years 7 months
Mortgage 4 – 3 years
Mortgage 5 – 7 monthsWhen you bear in mind the average home is owned for 7 years by residential owners and then that the average investor is going to be a bit more aggressive using equity etc
Thanks CRJ,
Do you keep returning to 0 equity? What's behind your strategy to keep re-establishing new loans?
Can you also tell me the source for your 7 year stat? I'm pretty shocked by that one too.
Thanks again,
Mine is about 4-5 years
Thanks God of Money,
What is it that drives such a short finance cycle, is it simply that you have a buy/sell cycle or is there something else happening that triggers refinance?
I have heard the average loan is 3.5 years too, but don't have a source.
The first loan that I ever wrote is still in tact, that is about 9 years old, but many others chop and change every few years. Trying to get equity out, getting better offers from different banks etc.
Terryw | Structuring Lawyers Pty Ltd / Loan Structuring Pty Ltd
http://www.Structuring.com.au
Email MeLawyer, Mortgage Broker and Tax Advisor (Sydney based but advising Aust wide) http://www.Structuring.com.au
Thanks Terry,
Another broker has provided me their book data ($b) in operation for 8 years which shows less than 0.05% of their book refinancing within that time. Of those that refinanced, the average life of loan was still closer to the 5 year mark, which means their moving average is more like 7.98 years and growing.
I would imagine that those chasing better deals (price) every few years would be getting into loans with DEFs and on that basis would have a minimum switch + re-establishment cost of say $1,500 (assuming no LMI). This means @ $350,000 they would have to squeeze a rate reduction of say 0.13% p.a+ just to break even. If they could do that every time, it makes you wonder why they started with such an expensive option in the first place.
I also imagine that in many cases, equity can be tapped for a lower cost with the existing lender than switching, especially if LMI is involved.
Nonetheless, this is all speculation based on one brokers stats. It would be great to be able to factor in your experience as well.
It would be useful to know what % of your book has refinanced in the last 9 years (email me for confidentiality if required) and what the average life of loan was for those refinancers.
Thanks for taking the time.
The 3.5 year figure quoted is a slightly dated figure which was the average duration of a bank's home loan portfolio. Subsequently banks introduced Deferred Establishment Fees and this has increased. Banks were quoting this as a justification for DEF's and suprise sprise the average DEF is on 4 years. Bank profitability models for Home Loans show that a big chunk of the profit on their home loan portfolio being earned in the first 4 years so hence DEF's…
The recent credit crisis has seen some segment of the market go down to 2 years (those on high rates) and some blow out.
My portfolio is approx 5.1 years for what its worth.
The reality is though bank's tend to love you when you want to borrow and then forget you once you are a customer and you find given the way house prices trend people tend to refinance to unlock equity, find a better rate and also out of frustration with their lender.
Thanks Spiro,
Your insight is excellent. Do you have an age and source for the 3.5 year statistic?
It’s seeming more like an urban myth based on the broker stats I mentioned and your own portfolio.
Does anyone have any suggestions of other forums or sources where I might be able to get to the bottom of this?
mortgagedetective wrote:Thanks Terry,Another broker has provided me their book data ($b) in operation for 8 years which shows less than 0.05% of their book refinancing within that time. Of those that refinanced, the average life of loan was still closer to the 5 year mark, which means their moving average is more like 7.98 years and growing.
.
HI Michael,
Your percentage figure of 0.05%. Is this correct? That means if this broker had 10,000 loans on their books, 5 have refinanced in eight years. Do you perhaps mean 5%?
According to the MFAA, the average life of a mortgage is 4 to 5 years.
Gidday Dan,
Thanks for the pickup, fat fingers on that one. The percentage is 0.5% or one in two hundred or 50 in 10,000.
My instinct tells me that their churn rate is low because their approach is so radically different to the mainstream lenders and brokers.
Which brings me back to my original post and that is, does anyone have a reliable stat which is more in the norm?
Thanks also for the MFAA reference. This seems to fit better with Spiro’s experience at least.
I’ll double check with Phil and see where they get that stat from. Sorry I didn’t think of him in the first place! I can’t see the forest for the trees sometimes.
Just a quick note of clarification on the MFAA's estimate of 4-5 years, I now have an informal response from Phil which explains that the estimate:
"… was based on info from lenders. However bear in mind that lenders classify each refi internally, or pay out for a refi elsewhere, or often changes to loans as new loans so this brings the average down. It does not intend to imply that most loans are repaid in 4-5 years."
The upshot of this is that the MFAA believes borrowers change loans on average every 4-5, (i.e. switching from variable to fixed etc) but not neccesarily lenders, which is, for the most part, what needs to happen for refund home loans to earn another commission to refund.
Do any brokers reading this forum have any idea which lenders will pay upfront for an internal refinance?
My understanding is that upfront is only paid where there is an increase in loan amount and that commission is only ever based on the amount of the increase, NOT the whole amount.
Michael that number is 3 to 4 years old and is the duration of a home loan quoted by a major bank that I worked for.
Michael that number is 3 to 4 years old and is the duration of a home loan quoted by a major bank that I worked for.
Gidday,
For those who are mildly curious, I have now sourced the most reliable indicator (remembering it is all statistics) and that number is 6.2 years.
The source is Fujitsu Consulting and the official statement is:
"Fujitsu maintains a marker model for the Australian Mortgage Industry which tracks consumer behaviour across the sector. The average life of a mortgage relationship is currently 6.2 years, and the average period between refinancing events is 36 months."The statistic is not published publicly by Fujitsu, however I have verified it with Martin North.
Thanks for all the input, it will be interesting to see how each of the refund home loans models rank on the shorter term.
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