Home Loan Stars
As the fixed rate terms of 2008 and 2009 expire, borrowers who fixed their home loans in 2008 just before the global financial crisis could now find themselves making up some lost ground because of competition in the current market, financial services research company Canstar Cannex said this week.
On the other hand, borrowers who fixed their loans in 2009 may find themselves paying more due to variances in rate movements.
"Those people who thought they were doing the right thing and fixed their loans in 2008 will find their mortgage repayments ease by $100 a month as they come off their fixed rate", Cannex financial analyst Mitchell Watson said, adding that at the other end of the scale, borrowers who fixed in 2009 can look forward to paying up to $300 a month.
"The blow can be softened because there are many good home loan deals currently being offered, as lenders jostle to find favour with customers in this subdued and hence competitive home loan market", Watson said.
"Fixed rates have dropped by 0.49 per cent in the space of one month and we have also noted some package discounts increasing to 1.03 per cent off the standard variable rate.
"Borrowers really are in the box seat for refinancing as well as new borrowing," Mr Watson said.
"The key to getting a good deal on your home loan is to compare."
As part of a regular review, Cannex has looked at 1700 home loans from 112 lenders across variable, fixed rate and line of credit loans for both residential and investment purposes.
The findings have been published online, together with the following tips to help you save money on your home loan.
1. Look for a lower rate
Make sure the interest rate you are currently paying is competitive in the current market. At present market rates the majority of borrowers should be able to source a loan under 7.5 per cent, even as low as 7.1 per cent.
2. Choose the right loan
While a low interest rate is one thing it won't provide any benefit if it doesn't suit how you interact with your loan. If you use your offset account for your everyday banking needs make sure the transaction costs are low.
If you plan to make additional repayments make sure the loan allows it at no additional cost
3. Reduce your interest cost
To reduce the amount of interest paid place any savings or run your salary through your offset account or redraw. Both options reduce the principal amount owing which in turn reduces the interest charged.
Placing $10,000 in redraw or in an offset account can save you $40,000 in interest charges on a $250,000 loan. It will also reduce the life of the loan by 2.5 years!
4. Repayment frequency
When deciding on how often you will make repayments, remember the higher the frequency the better.
Making repayments weekly or fortnightly instead of monthly will reduce the principal amount over more intervals. This will greatly impact on the amount of interest charged. For example, paying fortnightly over monthly on a $250,000 loan could save you $109,000 in interest over the life of the loan.
5. Meet your repayments
In 2009 Australian borrowers were slugged $42mil in exception or late payment fees. To avoid being part of this statistic, make sure you meet your repayments.
If you find yourself in a position where you are not going to be able to meet a repayment, contact your lender ASAP. This may reduce the chances of attracting a late payment fee and the lender may also be able to provide some financial assistance.
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