There is a boom unfolding in the number of mortgage customers taking out new loans to pay off their existing debt at lower interest rates, as banks fight to pinch business from rivals.

For the first time in four years, Aussie Home Loans says the number of loans it is arranging for owner-occupiers who are refinancing has overtaken lending to fund new purchases of properties.

With rates at the current historic lows, borrowers are getting the message that now is the right time to look at whether they can save. 

Aussie Home Loans chief James Symond

So far this financial year, the Commonwealth Bank-controlled broker says 28.5 per cent of its loans are for refinancing by owner-occupiers, compared with 25 per cent for property purchases by owner-occupiers.

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Refinancing is when a customer takes out a new loan to pay off their existing mortgage. Photo: iStock

Official data also point to a surge in the number of loans issued for refinancing, rather than for buying or building a new property.

Latest figures from the Australian Bureau of Statistics, published last month, show the share of owner-occupied loan approvals for refinancing hit previous record highs of 36 per cent in January and December, up from 32 per cent in early 2015.

The number of home loan approvals for refinancing in January was 22 per cent higher than a year earlier, compared with a 7 per cent rise in all loan approvals.

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Refinancing activity is near record highs, a reflection of fierce competition.

It comes after banks last year began to aggressively target owner-occupiers with lower interest rates and other perks, after the banking regulator clamped down on lending to property investors.

'Ferocious' competition in mortgages

Aussie Home Loans chief executive James Symond said the refinancing jump reflected "ferocious" competition in mortgages, and borrowers being more willing to shop around.

"With rates at the current historic lows, borrowers are getting the message that now is the right time to look at whether they can save money on their mortgage repayments through refinancing", Mr Symond said.

Softer growth in house prices also means the mortgage market is expanding more slowly, which can prompt banks to increasingly target their rivals' customers in order to maintain loan growth.

CoreLogic RP Data figures on Friday showed average annual growth in capital house prices was 6.4 per cent in the year to March, compared with 11.1 per cent annual growth in July.

Refinancing is when a customer takes out a new loan to pay off their existing mortgage.

Most of the time it involves changing banks in order to get a lower interest rate, but it also includes instances where customers stay with their bank but take out a new loan, which may be bigger or have different features.

Mortgage brokers are also playing a bigger role in the market, arranging more than 50 per cent of all new home loans, and the industry argues this is stimulating competition.

In a sign of banks fighting for new customers, Mr Symond said lenders were discounting their standard variable interest rates by as much as 1.5 percentage points, as well as offering "cash-back" deals.

Westpac, the country's second largest bank, last week confirmed there had been aggressive discounting for new customers in recent months though it said this had now peaked.

Aside from increased competition, Mr Symond said some of the customers refinancing were also taking out extra credit in order to access the increased equity they had in their homes, after a rise in house prices in recent years.

The last time refinancing made up such a high proportion of new lending activity, it was partly credited to the former Labor government's package of measures to encourage customers to shop around in banking, including a ban on exit fees.