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According to Digital Finance Analytics, at the end of March 2017, the discounted variable mortgage rate for owner occupiers was 4.55% per annum as compared to 4.85% a year before and 6.70% five years ago! However, in an increasingly competitive mortgage market today, borrowers, with a little bit of due diligence, could access home loans with interest rates below 3.80% p.a. Is it time to wake up then?

 

 
If you have not checked your home loan interest rate in the past year and a half, the chances are that you are paying more interest than the national average, just because you got too comfortable or didn’t bother to check how the mortgage market was faring.

In fact, you’d be surprised to know that despite the low interest rates, investor and owner occupier refinancing has slowed over the past couple of years (CoreLogic data). Undeniably, lenders love such borrowers – those who continue making repayments, year after year, without checking out better deals on the horizon they could easily switch to.

Every borrower knows that the big banks charge a premium on their home loans, compared to many other smaller and non-bank lenders. But how often does one think about the difference a few basis points could make to interest payments?

Take Laura’s case who recently switched from an interest rate of 4.75 percent to 4.65 percent per annum on her 30-year home loan of $450,000.

While her monthly repayments reduced from $2,347 to $2,320, it is incredible to note that just by switching to a rate 10 basis points lower than the existing rate, the total cost of the loan over its entire term came down from $845,068 to $835,331. That’s almost $10,000 less for just sizing up the market from time to time and keeping an eye out for a better deal!

Calculate the numbers for yourself here.


Banks don’t want you to know this about your home loan

The mortgage market has turned highly competitive of late. Savvy borrowers can use this fact to their advantage and minimise repayments and charges on their home loan by simply negotiating with the lenders for a better interest rate. The reason behind this is simple – switching your home loan to another lender is quite easy. Especially with the increasing competition in the market, your bank doesn’t want to lose you. So, if you see new customers getting a better rate or other banks offering lower interest rates, it is time to have a chat with your lender regarding your intentions to switch. Most likely, you’d be offered a much better rate without changing your lender. However, it still makes sense to compare refinancing deals online for a possibly better deal with another lender.

Do you know that the interest on your home loan is calculated on a daily basis by most banks? At the end of each day that you procrastinate switching to a lower rate, your lender calculates the interest on the balance of your home loan, adding it up over a month for you to pay.


When should you refinance?

There are many reasons why home buyers refinance. It could be for a lower interest rate, to switch from a variable rate to a fixed rate (or the other way round), or to use the equity in their home to fund another property or renovations.

Considering the low-interest rates currently being offered by several non-bank lenders and the probability of a rate hike in the future, this could be a good time to refinance your home loan and save thousands of bucks in the long run.

However, remember that refinancing is not free. There will be costs associated with exiting a home loan and setting up a new one. Experts suggest if the savings from refinancing do not offset the costs within the first two years of switching, it may not be worth it, after all. Thus, it helps to crunch the numbers before taking the plunge.

Another point that is often overlooked is when you refinance you are literally turning back the clock on your home loan. If you have only a few years left on your home loan, refinancing for a term of 20 years could defeat the overall objective of being debt-free as soon as possible. Besides, at the beginning of a mortgage, a larger part of each repayment is applied towards the interest payment, which means you do not build equity as quickly.


Make informed decisions

Before you decide on a home loan, it is also essential to look for the features you need in your loan. If the lower interest rate comes at the cost of features such as 100% offset account and the facility to make free repayments and redraws, you might lose more money than you would save in the long run by switching over. Contact an expert online to understand your situation better and boost the savings on your home loan.

On the whole, if you have not reviewed your home loan in the past two years or so, it is time for a health check up for your home loan. HashChing offers competitive fresh and refinancing home loan deals from over 60 lenders across Australia. Fill in the form below and we will put you in contact with a mortgage broker who can help assess your case for switching over to a lower interest rate. It could potentially save you more money on your home loan.

 
By Vidhu Bajaj
HashChing Content Writer
 

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HashChing is helping Australians by providing access to the pre-negotiated home loan deals. Obligation free consultation with one of our partner brokers might save you time, hassle and money.