With in­ter­est rates at new lows now is the time to put the squeeze on your mort­gage

Herald Sun - Property - - FRONT PAGE - PETER FARAGO

IT’S time to put the squeeze on your mort­gage.

The real es­tate in­dus­try re­joiced this month as the Re­serve Bank cut of­fi­cial in­ter­est rates to a record low 2.25 per cent. The move is likely to take the typ­i­cal stan­dard vari­able rate down to 5.7 per cent, but with dis­count­ing it’s pos­si­ble to sign up to 4.85 per cent — the low­est cost of mort­gage debt since July, 1968.

But the banks aren’t just go­ing to do it for you.

Ex­perts say there are ways to get ahead on your mort­gage, whether it’s pay­ing down as much of the debt as pos­si­ble or shop­ping around for a bet­ter deal. What­ever strat­egy, bor­row­ers can save up to $20,000 over the life of a loan if they play their cards right now.

Choos­ing not to re­set your loan re­pay­ments when lenders pass on the rate re­duc­tion can pay hand­somely. money ex­pert Michelle Hutchi­son said bor­row­ers could save more than $20,000 and shave al­most two years off the life of a 30year loan by main­tain­ing their present monthly re­pay­ments on an av­er­age $300,000 loan.

Fi­nan­cial ad­viser and mort­gage bro­ker Bruce Brammall said many bor­row­ers might al­ready be do­ing this with­out re­al­is­ing.

“Be­cause we’ve had a long down­ward trend for in­ter­est rates, peo­ple might al­ready be pay­ing con­sid­er­ably more than they need to,” he said.

“The num­ber one thing is if you’re pay­ing the higher rate, keep it go­ing.”

Mr Brammall is a li­censed fi­nan­cial ad­viser and mort­gage bro­ker with Bruce Brammall Fi­nan­cial, a Her­ald Sun colum­nist and au­thor of the new book, Mort­gages Made

Easy, due for re­lease next month.

He said shop­ping around for a bet­ter home loan al­lowed bor­row­ers to ac­cess bet­ter dis­counts on their in­ter­est rates, such was the level of com­pe­ti­tion among the banks. Banks were of­fer­ing bet­ter dis­counts to­day than as lit­tle as two years ago, he said.

“It’s im­por­tant to un­der­stand that the banks are win­ning new clients with big­ger dis­counts,” Mr Brammall said.

“A bank will never go to an (ex­ist­ing) mort­gage cus­tomer and say I’m sorry, you’ve got some big loans with us, (so) we’re go­ing to in­crease your dis­count from 0.8 to 1.1 per cent.”

Mr Brammall said the only way ex­ist­ing clients could get th­ese dis­counts was to switch to an­other bank, or threaten to leave their ex­ist­ing bank. But it had to be a cred­i­ble threat.

He ad­vo­cated us­ing a mort­gage bro­ker to help.

Bor­row­ers with mul­ti­ple loans should also con­sider us­ing the same lender, as the com­bined value of sev­eral loans could put you into a bracket where banks of­fered higher dis­counts. “If you’ve got your home loan and it’s $400,000 you’re go­ing to be a rea­son­ably val­ued cus­tomer,” he said.

“But if you add a $500,000 in­vest­ment prop­erty, you’ve gone to $900,000 and you’ve kicked into a new bracket where banks fight a bit harder and of­fer big­ger dis­counts.”

Bor­row­ers pay­ing off loans on their home and an in­vest­ment prop­erty could also make sav­ings by us­ing the right re­pay­ments strat­egy.

Mr Brammall said the tip for mort­gage hold­ers with both a home loan and in­vest­ment loan was to con­cen­trate all their spare money on pay­ing down the prin­ci­pal and in­ter­est on their home, while switch­ing to in­ter­est-only re­pay­ments on their in­vest­ment prop­erty.

“As an ex­am­ple, if your home loan has re­pay­ments of $2500 a month, prin­ci­pal and in­ter­est, and prin­ci­pal and in­ter­est on the in­vest­ment prop­erty is $2500, switch it to in­ter­est only and it will come down to $2000 a month,” he said.

“You’ll only be pay­ing the in­ter­est but the ex­tra $500 you save can be used to pay down your home loan.”

An added bonus to this strat­egy was that in­ter­est pay­ments on in­vest­ments were tax de­ductible, Mr Brammall said.

“The rea­sons for do­ing that can be that you pay down your non-de­ductible debt first, while keep­ing your tax de­duc­tions higher be­cause you’re only pay­ing the in­ter­est,” he said.

Loan Mar­ket chair­man Sam White said mort­gage hold­ers also needed to fac­tor a rate rise into their think­ing.

The key mes­sage was to pay off what they could now ahead of an even­tual rise in the cash rate pre­dicted in the fu­ture, he said.

“While the change is ex­pected to be grad­ual, it may peak in a cou­ple of years time,” Mr White said.

“The more pre­pared own­ers are now, the more time and money they can save on their mort­gage in the long run.”

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