Use low rates to bust up your debt, ex­perts urge

The Courier-Mail - Property - - REALESTATE MARKET WRAP -

IT’S had a great run, but I’m not sur­prised that ex­perts are now vig­or­ously re­mind­ing home­own­ers that the pe­riod of low in­ter­est rates won’t last for­ever.

The fear seems to be that bor­row­ers won’t use this time to do what’s best for their mort­gage - that is, to pay down debt while charges are low.

The call to “make hay while the sun shines” comes de­spite ex­perts se­ri­ously con­tem­plat­ing the like­li­hood of the next in­ter­est rate move be­ing down rather than up, as ear­lier pre­dicted.

The Re­serve Bank of Aus­tralia has held its cash rate tar­get at 2.5 per cent since Au­gust 2013, spark­ing a chain re­ac­tion of com­pet­i­tive low rates among both big banks and smaller lenders.

Peter Arnold of com­par­i­son site Ratecity.com.au said the RBA’s lack of move­ment had caused a trend of “lower for longer” among lenders.

He said the dom­i­nant think­ing was that “a cash rate hike may still be a way off, com­bin­ing with chat­ter about an in­creased like­li­hood that the next move is down”.

But he cau­tioned bor­row­ers against be­ing lulled into a false sense of se­cu­rity.

“Most rates re­main at his­toric lows, and, while they may go lower still, we ex­pect that rates will ul­ti­mately rise. I’d urge con­sumers to use this low-rate en­vi­ron­ment to make in­roads and get ahead on pay­ing down debts.” Con­sumers have been spoilt for choice of late given the ar­ray of in­ter­est rates on of­fer across all cat­e­gories, in­clud­ing home loans.

“While in the pre­vi­ous quar­ter the majority of rate move­ments were led by the ma­jors, this past quar­ter saw most of the ac­tiv­ity from smaller play­ers.”

Vari­able rates had con­tin­ued their grad­ual slide but it was fixed rates that saw the largest cuts, Mr Arnold said.

“Fixed rates re­main the big­gest movers again this quar­ter, with most ac­tiv­ity from the non-ma­jor banks, which have con­tin­ued to push rates lower in the home loan space.”

Money ex­pert Michelle Hutchin­son of com­par­i­son site Finder.com.au urged bor­row­ers to shop around for the best rates, given a mort­gage of $489,300 could blow out to $1 mil­lion in costs over the life of a 30-year loan at 5.5 per cent vari­able in­ter­est rate.

“While it’s likely that your home will in­crease in value over a 30-year loan term, it might not com­pen­sate the cost of a home loan as the money you end up spend­ing can be greatly in­creased if you have a small de­posit and don’t shop around for a good value deal,” she said.

Ms Hutchin­son said bor­row­ers should take ad­van­tage of on­line tools to com­pare dif­fer­ent home loan prod­ucts.

The lat­est ANZ/Prop­erty Coun­cil Survey found a pos­i­tive out­look for the hous­ing mar­ket in 2015.

The next Re­serve Bank board meet­ing to de­cide whether to move the cash rate is on Fe­bru­ary 3, with the re­sult made known at 3.30pm Bris­bane time.

Ex­perts are urg­ing Aus­tralian fam­i­lies to use the cur­rent low in­ter­est rate en­vi­ron­ment to pay down big chunks of their home loan debt be­fore the Re­serve Bank of Aus­tralia (be­low) con­sid­ers tak­ing its cash rate tar­get higher.

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