At a time when borrowers are being urged to make the most of this month’s cash rate cut, a national survey of over 900 recent first homeowners has found almost one in three borrowers is unaware of their home loan’s interest rate.
The findings of the 2012 Mortgage Choice Recent First Homeowner Survey show that levels of concern around interest rates have dropped dramatically in the last year, from 47% in 2011 to just 13% this year. At the same time, the survey suggests that borrowers are less engaged with their mortgage, with the number of borrowers aware of their home loan’s interest rate falling from 72% in 2011 to 68% this year.
This suggests that borrowers may be assuming they will benefit from these much anticipated rate cut without being proactive. The results also serve as a timely reminder that borrowers should take stock of their financial situation, especially for what is often their biggest financial commitment, their home loan.
Making the most of any cash rate cut requires borrowers to take action. The rate cut should be the catalyst for further savings!
If you don’t already know your home loan’s interest rate, then take on the research task yourself or ask your local mortgage broker to investigate this and other loan aspects for you so you have a clear understanding of your current home loan product.
It’s important to regularly compare your loan’s interest rate, fees and features to other options in the market and to ask yourself, am I still getting the best deal? If the answer is no, then finding a loan product better suited to your current needs is a great first step towards a better loan outlook.
Interestingly, the survey found that 28% of borrowers have considered switching to a new lender in search of a cheaper option as a result of recent interest rates movements. And over half of those respondents said they are actively looking to change their lender or loan – a positive proactive step for those borrowers who are not necessarily happy with their current position.
It is also encouraging to note that as a result of other cash rate cuts that have occurred this year, 72% of recent first time borrowers have kept their home loan repayments at the pre- rate cut level or increased them further as a result. This is one way to successfully live loan-free, faster.
Take a home loan of $300,000 at 7% over 30 years, for example. If your rate reduces to 6.5% and you keep repaying your loan as if the interest rate was still 7%, you could shave approximately four years off the loan term and save around $60,000 in interest owed.
Switching monthly loan repayments to fortnightly is another helpful way to make a dent in your debt. By paying fortnightly, you make the equivalent of 13 monthly repayments instead of the usual 12. The savings, based on the above mentioned loan, equates to around $103,000 in interest and about six years and six months off the loan term.
Based on these savings tips, I hope to see more borrowers reviewing their situation and considering the possibility of increasing the frequency and amount of their repayments. After all, repaying your home loan sooner opens the doors to more investment opportunities.
For more information contact Richard Windeyer on 1800 01 LOAN or click here to "Book a Meeting"