Homeowners failing to make extra payments

HOME loan customers should be paying down their debt faster, as new research reveals that just one in four borrowers is ahead.

Maximising the record lowinterest rate environment is pivotal to ensuring borrowers can make as big a dent as possible in the often large sums of money owing.

On a typical $300,000 30-year mortgage, the average variable rate is 4.46 per cent and minimum monthly repayments are locked in at $1512.

But if borrowers lifted their repayments by an extra $50 a week, their repayments would jump to $1729 and result in the loan being paid off six years and nine months earlier.

Also, the impact on the customer’s bottom line is huge: it would save them $62,300 in interest repayments.

New research from Canstar Blue found 47 per cent of borrowers were making their repayments but failed to pay any extra, instead letting a good opportunity to be ahead slip by.

Canstar group executive of financial services Steve Mickenbecker said it was critical borrowers made extra repayments if possible before rates eventually climbed higher.

“We are living in a false paradise if you don’t think rates are going to go up,” he said.

“If you are struggling to make repayments today, you are in trouble.”

Historically, home loan interest rates were typically about the 7 per cent to 8 per cent mark.

The latest research found 10 per cent of borrowers struggled to meet repayments and about 3 per cent were not making their repayments.

The Reserve Bank of Australia board this month kept the cash rate on hold at 1.5 per cent and it has not moved from there for more than two years.

Despite this, in recent months many lenders have continued to massage their interest rates, including increasing them.

Aussie Home Loans chief executive officer James Symond said there were some simple ways to help pay down your loan faster.

This included setting up fortnightly instead of monthly repayments. As interest is calculated daily, this can help bring down the loan charges more quickly.

“Also ensure principal repayments can be made at any time and a redraw or offset facility is part of the loan,” Mr Symond said. “I suggest extra repayments are made every month as the smallest amount can save months to years off the life of the loan.

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