What I tell my children: Kochie
TAMING the mortgage monster should be the top priority of all Australians with a home loan.
On second thoughts, it’s probably the second top priority behind getting rid of consumer debt: outstanding credit card balances and personal loans.
But while the interest rates on credit cards and personal loans are extortionate, the size of these loans is much smaller than the average home loan.
For that reason the mortgage really is the loan monster of most Australian families. It always has been. And it still is for Libby and me, as well as for our children and their families. There are four key strategies I’m advising my kids to follow:
SAVINGS ARE FOR MUGS
If you have a mortgage you should have no savings. Interest rates through online savings accounts are horrible. You can barely get a 1 per cent return on them, and then it has to be declared as taxable income.
So put any savings into the mortgage, making sure you have the ability to redraw in case of an emergency or any other big expense.
PAYING THE OLD RATE
While the banks are bastards for not passing on the full Reserve Bank rate cuts, they have passed some of it on and repayments have fallen. Instead of those repayment savings disappearing into the general family budget, keep repayments at the higher pre rate cut level.
The extra repayments will slash the loan principal and, in turn, save even more interest.
NEGOTIATE A DISCOUNT
First, read the most recent home loan statement and understand the interest you’re paying.
Then go to a comparison site and compare it with other financial institutions. Then ring your financier and ask for a discount on your current rate. You’ll be amazed at the result.
My kids have negotiated a
0.5 per cent discount on top of the rate cuts and a reader emailed to tell me they’d had 1.25 per cent shaved off their home loan just by asking.
GO DIGITAL
There is competition in the home loan market from new online digital lenders, with many offering a variable mortgage rate under 3 per cent.
They don’t have expensive old technology and costly branch networks of the big banks so they can offer a better rate, but are still monitored by the same regulators.