Do you know your home loan interest rate? If not, you’re not alone. In fact, research by Australian start-up Finspo found that 54% of Australians don’t know how much interest they’re paying on their loan. The same survey found that almost three-quarters felt that they probably didn’t have the best interest rate available but, interestingly enough, only 21% said they’d negotiate with their lender for a better deal.
So, why are so many Australians in the dark when it comes to their home loan interest rate?
Why You May Not Know Your Current Interest Rate
Home loan interest rates often change and this can make it difficult to keep track of exactly how much interest you are being charged. You may have been familiar with your interest rate when you first obtained the loan, but since then, the fixed-rate term may have ended, the Reserve Bank of Australia (RBA) may have adjusted the official cash rate and your lender may have altered your interest rate in response. All of a sudden, you’re not so sure how much you’re paying or how your loan compares to other home loan products.
Why It’s Important to Know Your Home Loan Interest Rate
In an Australian government survey measuring the effects of COVID-19 on the population, 70% confirmed they were at least a little concerned about their future financial situation. As a result, 53% said they were cutting down on non-essential household costs in an effort to save money.
When you think of “non-essential household costs” you may be thinking of your gym membership or your daily coffee run, but the reality is, mortgage holders can often significantly reduce the amount of interest they’re paying on their loan just by refinancing to a lower interest rate. But, to do this, you first need to find out what your current interest rate is.
Common Misconceptions About Home Loan Interest Rates
The same Finspo survey referred to earlier identified some common misconceptions about home loan interest rates. It showed that:
- 30% think fees and interest rates aren’t significant enough to justify a change.
- 28% think that all financial institutions are (more or less) the same.
- 20% think that refinancing is too difficult.
These misconceptions could end up costing you tens of thousands of dollars (or more!) over the life of your loan, so let’s address these points one at a time.
Misconception #1: Fees and Interest Rates Aren’t Significant Enough to Justify A Change
Interest rates in Australia are currently the lowest they’ve ever been. If you haven’t compared your rate in the last two years, then it’s highly likely you could get significant savings from refinancing. What kind of savings? Well, imagine you have a $500,000 mortgage with a 30-year term, an interest rate of 3.5% and a $5 monthly fee.
You’d be paying around $2,250 per month. But if you were to refinance to a comparable loan with a 2.5% interest rate and no monthly fees, then your repayments would drop to about $1,975. By getting rid of the $5 monthly fee and reducing your interest rate by 1%, you could save $275 every month, equalling $98,862 over the life of the loan!
Misconception #2: All Financial Institutions Are (More or Less) the Same
On the surface, it may seem like most lenders are offering similar loan products. But a quick glance through mortgage products currently available from Australian lenders will show that this isn’t the case. For example, interest rates being offered with new loans can range from around 3% down to just 1.69%, while application fees fluctuate between $600 and $0 upfront. Some lenders will allow applicants to borrow up to 95% of the purchase price, while others will only offer 80% – a few will be unwilling to lend more than 60% of the purchase price.
Monthly fees can also fluctuate wildly, from $0 per month to $10 per month or even $395 per year. Additionally, some lenders will be more open to accepting an application from someone who is self-employed, while others will offer special deals to medical professionals or first home buyers who have a guarantor.
Misconception #3: Refinancing is Too Difficult
This point should come with a clarifier – refinancing on your own can be very difficult. But there’s no reason for you to refinance on your own. An experienced mortgage broker can do all the hard work for you. This includes comparing all of the available loan products, identifying which mortgage deals will best suit your particular needs, negotiating with your current lender and handling the necessary paperwork.
Best of all, a mortgage broker is committed to acting in the best interests of the customer – so, if they think you’ve already got an amazing deal, they’ll tell you!
To find out more, contact Phil and the team at Professional Lending Solutions for some free and expert advice.