By Guest Blogger, Sarah Megginson
Money expert & media spokesperson | Head of Editorial, Finder
Your home loan hasn’t been this expensive in years, as most Australians now have a variable rate home loan paying a rate of 6% or more. It’s a lot more than we were paying just two years ago – but here’s how you can pay less.
With interest rates having peaked, borrowers have a lot of motivation to review their mortgage repayments and look for an opportunity to save.
The pressure is even greater for investors, who are typically paying an even higher interest rate than owner occupiers. This is because these are riskier loans from the bank’s POV; with an interest-only loan, you’re not making any headway with the principal amount and your loan to value ratio is higher.
Banks prefer it when your debt is getting lower over time, as there’s more equity in the property and less risk to them if you suddenly stop paying your mortgage, and they need to sell the asset and recover their costs. On the upside, the interest is tax deductible – but it does create even more of an incentive for investors to ensure they’re not paying too much.
Home loans may be expensive, but it’s still very competitive and banks and lenders are very keen to get your business. So what smart strategies can you use to reduce your debt levels and pay less each month?
It might not sound very romantic, but setting yourself an annual “home loan anniversary” could fund some of your future real-life dates!
The idea is to pick one date – say, June 1 every day. That’s your home loan anniversary. On this date, you check your home loan/s to review:
Asking yourself these types of questions every 12 months or so, gives you the opportunity to make sure your loan still suits your needs.
Call your lender and ask to speak to the retention team. These are the people whose full time job is to convince customers NOT to leave the bank. They have a few tools at their disposal – like waiving fees, or offering interest rate discounts – to convince customers to stay with them.
Even if you’re not planning to refinance, there’s nothing stopping you from telling them you’re considering it. Ask something like: “I’m shopping around and there are better deals on the market right now: is my current interest rate the best offer you can give me?”
You’ll be surprised at what they can do for you. And if it turns out they’re not able to do much, move on to step 3.
Review the current home loans market and see what other banks are offering, so you can get an idea of which banks can give you a more competitive lending rate.
Right now, there is a huge amount of variation in home loans – on our panel of home loans at Finder, rates can start as low as 5.99% and run as high as 7.68% (not including comparison rate).
This variation creates a huge amount of opportunity for mortgage holders to shop around and get a better deal.
One final consideration…
Property finance is a complicated area and you should lean into your network of professional advisors if you’re an advanced investor with multiple properties. They can give you strategy advice that relates to your specific situation.
For instance, as an investor trying to build a property portfolio, paying the absolute lowest interest rate might not be as important to you as maximising your borrowing capacity. You are likely to also have different needs and attitudes around interest only loans versus principal and interest loans, and your accountant may have advised you on different tax strategies you can use to make the most of your position.
For all of these reasons, having a trusted team to advise and guide you can be really beneficial.
In the meantime, keep the romance alive in your financial life by sticking with those annual home loan anniversaries. You might even want to complement them with a monthly money date night, so you’re well on top of your finances and your money is working as hard as possible to create a better financial future.
Sarah Megginson is a personal finance expert at Finder and regular media commentator, with over 20 years' experience in property and finance journalism. She holds ASIC RG146-compliant Tier 1 Generic Knowledge certification and as a mother of three, Sarah is passionate about helping the next generation understand how to earn, invest and manage money.
To have one of the friendly Buyers' Agents from propertybuyer to
contact you in regards to buying property,
click below to
call us on 1300 655 615 today.