Cut thousands from your home loan
IN A tough lending environment, borrowers who are prepared to negotiate a rate discount can pocket savings worth thousands of dollars on their home loan.
The official cash rate has maintained a holding pattern at 3.5% for the third consecutive month. It means we're unlikely to see any rate cuts from lenders this month, but spring is traditionally a busy period for buying and selling residential property, and lenders are hungry for your business.
The home loan market has been flat for the past few years. Government figures show fewer than 50,000 home loans have been written each month since the end of 2009, making it relatively lean pickings for the nation's many mortgage lenders.
That makes it worth negotiating for a better deal on home loan interest rates rather than simply accepting a lender's advertised rate. You just might get lucky.
Comparison site RateCity have done the sums, saying that if you can secure a 0.4% rate discount on a $300,000 loan, you could potentially trim a rate of 6.35% down to 5.95%. This would cut the monthly repayments by $78 - an annual saving of around $1,000.
Lenders are more likely to offer a discount if you're taking out a large loan, or if you have a number of products with the same institution - like a mortgage, a credit card and transaction account, and maybe some savings on deposit.
Even if you feel you're not in a great position to negotiate you can still save a small fortune in loan interest just by shopping around.
The average standard variable rate is currently 6.35%. But there are around 60 loans that charge far less. Like Suncorp's 5.85% mortgage or loans.com.au's home loan costing 5.65%. There are also some appealing rates for those refinancing, through UBank (5.62%) and BankMecu (5.74%).
The rate you pay should always be a major consideration with a home loan though it isn't the only factor to look at. Lenders are coming up with an ever-expanding range of innovative features. These can make your loan easier to live with, and in many cases help you save money in the long run.
As a guide, QT Mutual offer a Mortgage Breaker loan that lets borrowers have a 3-month repayment holiday after they have held the loan for over 12 months. BankMecu offers an 'eco pause' giving borrowers a break from repayments to help meet the cost of installing energy or water saving appliances.
Even fixed loans are becoming more flexible. A number of lenders like ANZ Bank offer a mortgage offset with a fixed loan. It lets you use personal savings to reduce the interest expense and pay the balance off sooner.
The key is to look at both sides of a home loan - the costs and the benefits, to work out which gives you the best result.
For more on getting the best deal on your home loan take a look at my book Making Money. Or, to see why paying off your loan ahead of schedule is such a useful strategy download my free e-book 'Ten Steps to Financial Security' at www.paulsmoney.com.au
Paul Clitheroe is a founding director of financial planning firm ipac, chairman of the Australian Government Financial Literacy Board and chief commentator for Money magazine. Visit www.paulsmoney.com.au for more information.