This article is brought to you by ME.
With speculation rising about higher interest rates, now’s the time to get on top of your home loan and wave away concerns over rising rates.
Current interest rates are at record lows in Australia – and while that’s great for home owners, it also means there’s plenty of scope for an interest rate rise. In fact, worries about possible future rate hikes are a leading cause of concern among Australian home owners.
That’s not surprising. Already, Australians are tipping an average of one-third of their take-home pay into home loan repayments. And ME’s latest Household Financial Comfort Report found one in two households with a mortgage could struggle financially if the Reserve Bank increased the official cash rate to 2.5% p.a., up from 1.5% p.a. at present.
With some lenders already increasing rates out of cycle with the Royal Bank of Australia, it’s worth taking a few steps to get on top of your home loan today.
Check the rate you’re paying
There’s a massive rate gap between the most expensive home loans and those offering the best value. According to comparison site Mozo, for the average borrower on a $300,000 loan, the difference between the big banks’ rates and some of the most affordable loans can add up to $2,496 a year. Over ten years, that totals $24,960, making a compelling case to review your current rate.
Plenty of loans come with current interest rates below 4.0% p.a. - if yours isn’t one of them, it’s worth thinking about refinancing.
Consider fixing
Locking in your rate can make a lot of sense. Fixed home loan interest rates are very low right now, and it means protection against rate rises for the full fixed term – anything from 12 months right through to seven years with some lenders.
If you’re not comfortable about fixing your entire loan, consider splitting between fixed and variable rate portions. It’s like an each-way bet that gives you the flexibility of a variable rate plus certainty of repayments on the fixed rate balance.
Make the most of redraw or offset
Put your spare cash to work paying down your loan, and be rest assured you can withdraw money when it’s needed through redraw. Or, if you prefer at-call access, an offset account can provide valuable savings. Instead of paying interest on the full loan balance each month, interest is calculated on the value of the loan less savings stored in the linked account. It’s a smart way to get more from your money.
Round up repayments
Here’s a handy tip to pay your loan down sooner with minimal financial impact. Round up your monthly repayments to the nearest $100. Every extra dollar paid off your loan reduces the balance, trimming next month’s interest charge and fast-tracking your way to mortgage freedom. On a $300,000 loan with a rate of 3.74% p.a., rounding the monthly repayments from $1,540 to $1,600 could see you save almost $11,000 in overall interest costs and cut up to 18 months off the time taken to become mortgage-free[1].
The bottom line is that current interest rates won’t stay low forever. Taking action now could see you forge ahead financially – free from concerns about higher rates.
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* This information has been issued by Members Equity Bank (ME Bank). This information does not take into account your situation and you should consider if these products are appropriate for you.