The Reserve Bank of Australia's decision to raise official rates for the second time in 19 months – from 3.25% to 3.50% – has brought an end to the low interest rate honeymoon for mortgage holders.
However, homeowners can negotiate a lower mortgage rate despite the upward movement in interest rates. As a consumer you have the ability to take your interest rate destiny into your own hands and seek a lower rate now on an existing home loan.
Many mortgage holders are on standard variable home loans with the major banks and more than 50% of those consumers are paying an unnecessarily higher interest rate. You can still negotiate a mortgage rate that is anything from 0.70% lower or more for large size loans.
One option for mortgage holders is to examine some of the variable rates on offer, including the smaller lenders. This could help you make substantial annual savings and is an especially wise decision considering most economic forecasters expect official rates will rise up to 2% over the next 18 months.
There are many steps mortgage holders can take to limit the impact of variable rates returning to their traditional medium level of about 7.8%.
If you are repaying a home loan I suggest you pay as much as you can, not just the minimum repayments. This will prepare you for when the minimum repayment rises and will create a buffer.
It is also beneficial for home owners to have a ‘health check' conducted on their mortgage. A mortgage is no different to your home, your car or even yourself – routine maintenance and a regular health check are essential to make sure everything is working effectively.
A mortgage broker is well placed to review the circumstances of your current home loan and determine whether any changes are needed. In perhaps a quarter of health checks, we can establish that a change would be beneficial to the client's loan arrangements through refinancing. Mortgage brokers also assist customers with debt consolidation, which can save them paying much higher rates, reduce the term of the loan or dramatically reduce the monthly commitments.
Top Tips for Getting a Better Home Loan Deal
- Look outside the big banks. Many smaller banks, specialist leaders and credit unions have very competitive loans available. A mortgage broker will know which ones are credible.
- Bigger loans mean bigger discounts. The bigger your home loan, the more options you usually have in terms of discounted rates and flexibility.
- Mix up your loan structure. Having a mix of part variable home loan, part fixed home loan can work well in some cases, but it's not the only way to mix your loan options. Some lenders will allow you to combine a discounted introductory loan with a negotiated professional package loan, which may also include a fixed rate loan, for example.
- Avoid paying lenders mortgage insurance (LMI). Consult your mortgage broker as there are ways to avoid paying this.
- Make sure your broker works hard. The broker's job is to get the best rate and deal they can for you. It's entirely possible for a good broker to help you get a better deal, even with your current lender.
Sandra Crossland is a loan market mortgage broker in St Ives, Sydney.