How to beat the rising mortgage rate?
Although the RBA reduced the cash rate in 2016, lenders have reacted by increasing their mortgage interest rates. In December 2016 we expected that mortgage rates would continue to increase in 2017 regardless of the RBA cash rate decision which turned out to be accurate.
The real loser amidst this turbulence times without a doubt will be us, the borrower. So we put together a simple list of actions you can take to beat the rising mortgage rates.
Consider fixing your home loan
Full disclosure: My wife has a home loan, and I can’t convince her to fix it. In other words, this option is not for everyone. It’s available if you want to take it up. Things to consider if you are intending on fixing includes:
Would the offset account still offset? Most times the answer is no, it will not.
How much extra can you put into the loan? Also, knows as extra repayments. Most products will allow up to $10K per year.
Redraw. Ask if you can redraw if required?
Why you should fix your home loan?
Peace of mind: you know what you would end up paying for the period you fix your loan.
Stability: Will be easy to budget over this time, especially if you are going through a life-changing event like having a baby.
Why you shouldn’t fix your home loan?
Gamble: Fixed rates don’t move. So, if the mortgage rates go down the rate will remain unchanged.
Break fee: If you want to break a fixed term there would be a pretty hefty fee involved.
Change your mortgage repayment type
Personally, I am not a big fan of interest only repayments. I’ve seen how some borrowers over leverage using interest only repayments. Some banks offer interest only repayments up to 10 years. But the most recent rate hikes were mainly aimed at borrowers who are repaying interest only.
If you are in a position to change your repayments from interest only (IO) to principal and interest (PI), you might see a solid 20-30 basis point reduced in your mortgage rate (0.20%-0.30% per annum).
It’s important to remember that by changing over to principal and interest repayment your weekly/fortnightly/monthly repayments will also increase. So give this some thought.
In most cases to change the type of repayments, it will be a simple phone call to your bank, but some banks will make you fill up some forms.
Call up and ask for a discount on your mortgage rate
We should have a national ‘call your banks and ask for a discount day’. The 30 minutes (25 minutes of waiting music and 5 minutes of negotiating) you spend on this call will be worth thousands of dollars’ in savings.
Getting just a 0.20% per annum discount on a loan worth $500,000 will save you around $21,000 over the life of a loan.
Refinance your home loan
Probably the most underrated solution. A solution that’s probably far more efficient compared to other options out there. Refinancing is when you take your home loan from your current bank to another bank. Most people make it sound as if there is a lot of work behind refinancing. But the fact is it’s a simple process. If you can provide your payslips, bank statements (home loan, credit cards and personal loans), and the copy of your council rates you are 90% there. The rest is all about securing a fabulous home loan product and rate.
Unashamedly I can say that getting banks and brokers to fight for your home loan via a platform like LoanDolphin will help you find better deals with minimum effort.
That’s it. Simple yet effective ways to beat the rising mortgage rates.
Why not get the banks and brokers do the work for you?