To get the best home loan deal possible, you need to ask yourself a number of questions. The most beneficial questions to ask are those that ensure that you are getting the soundest rate possible over the lifetime of your loan. Let’s look at four of these questions now.
Most borrowers don’t know what their home loan interest rate is. Many also do not feel that rate changes make a significant difference to their home loan repayments. However, the truth of the matter is that a change of .25 of a percent significantly increases the total amount of interest that you will repay your home loan over its term. For example, if you borrow $500,000 for a home over 25-years at 5%, then your monthly repayments will be $2,923.00. Over the 25-year term, you will pay back $376,885.00 in interest. However, if your rate of interest is 4.5%, over 25-years you will pay back $2,779.00 per month and $333,749 in interest. Therefore, by paying just .5 of a percent less in interest you are saving yourself $144.00 per month and $43,136.00 over the term of your home loan.
With interest rates in Australia at their lowest, many lenders are offering attractive standard variable rates that are below 5%. If you are looking for long-term security, then expect to pay more for a fixed rate home loan. Market rates for fixed loans are below 6%.
To review interest rates, use a search engine online and type in ‘compare home loans’. Always go by the comparison rate when considering home loans. This rate gives you an accurate indication of the cost of the home loan over the loan term, as it includes fees, charges, and other home loan costs.
It is also important for you to read any ‘small print’ when reviewing home loans, especially in relation to ‘introductory offers’ and fixed loans. Why? Well, the small print can disclose what the interest rate will revert to after the introductory period, or fixed term expires, and this may be much higher than the market rate.
If you have been with your existing lender for many years, and your rate seems higher than the current market rate, then contact your lender. Arrange to make an appointment to discuss your current rate. At this meeting, take a print out of your home loan comparison information with home loan data that’s the same as your existing home loan. Then ask your lender if you can get a better rate. Most lenders prefer to give you a cheaper rate, rather than lose your business.
Many home loan features enable you to reduce your home loan interest. These features include an offset account and a redraw facility.
The offset account
An offset account is connected to your home loan. Therefore, any funds held in this account reduce your home loan balance by this amount. For instance, if you have a home loan worth $250,000, and you have $50,000 in your offset account, then you will only be paying interest on $200,000. On a home loan of $250,000 over 25-years, having this amount in your offset account will reduce your home loan term by 5-years and 2-months, and you will save yourself approximately $42,067.00 in interest over the term of the loan.
The redraw facility
A redraw facility allows you to pay more off your home loan when you have extra funds, but you can then draw this money back out, at a later date, if you need them. For instance, let’s say you have an extra $100 a week, so rather than spending this you pay this off your home loan. Over 24-months, you have paid an extra $10,400 off your home loan. On a $300,000 mortgage at 5.22% over 25-years, paying an extra $100 a week will shave 8-years off your home loan term and save you around $83,000.00 in interest.
Do you want to know more about home loan savings? Then contact eChoice, we can help.