Kathryn Lee - 18 Sep, 2019

Top tips to take advantage of low mortgage rates

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With Reserve Bank cash rates at record lows and lenders dropping interest rates, it’s a particularly good time to get yourself a home loan.

And, if you have an existing mortgage, you too can reap the benefits from the current lending conditions.

Here are a few tips to make the best of the current lending climate.

Variable Rate Mortgage

If you have a variable rate mortgage, it’s likely you’re already enjoying the lowered rates. The majority of banks have already passed on rate changes and under a variable interest rate you can expect an automatic change.

RateCity researcher Sally Tindall told the Sydney Morning Herald that variable rate mortgage holders could pocket over $100 each month, since the cuts.

If you’re unsure about the state of your variable rate, check that your bank has lowered their rates. Otherwise you may want to cast your eyes to what else is on offer in a competitive market.

Think about refinancing

If you have an existing mortgage, it’s arguably the best time to refinance your loan. Your first step should be to research what’s on offer, ensuring you account for all hidden fees including application fees, exit fees or break costs.

Be careful not to get lured into “honeymoon” offers which promise you a better deal – but only for a short period of time.

If you’re happy with your rate, try to lock it in with a fixed rate mortgage before the rates begin rising again.

For more help on this topic, you can read our refinancing guide here.

Pay up fast

Low interest rates are ideal for chipping at your principal. If your minimum monthly repayment has dropped, get ahead by paying the previous amount. This will lower your interest burden in the future and help you pay off your mortgage faster.

Save for the future

While it’s beneficial to direct as much money as you can into your home loan right now, that’s not your only option to get ahead. You might want to redirect some of your funds into your savings account.  

If you already have a high–interest or regular savings account, there are ways you can link this up to your loan.

The first involves checking if your loan has a redraw facility. If this is the case, you will be able to redraw the sum over your minimum monthly repayments. 

With that said, redraw facilities can be strict and may involve fees when you want to withdraw this extra cash.

Another option is an offset account.

An offset account is a savings account or an everyday account which is linked to your home loan account. It works to ‘offset’ your home loan balance daily, meaning you are only paying interest on the difference between your principal loan and the balance in your offset account.

For example, if you have a home loan balance of $250,000 and you have $40,000 in your offset account, you will only be paying interest for a home loan balance of $210,000.

With an offset account, you can withdraw any savings when you need it, but this also reduces the amount you offset your loan – so this requires some discipline.

Words by Rebecca Mitchell

Are you looking for a more competitive mortgage that gives you a better deal? It could be time to discuss your home loan options with an eChoice mortgage broker. Our brokers have extensive market knowledge and have helped thousands of people secure a competitive mortgage.

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