It’s Always Time to Look for A Cheap Home Loan – Especially Now

Getting a perfect score of 10/10 was a good thing at school, but with the Reserve Bank of Australia raising interest rates 10 times in the last 10 months, not many of us have the same feeling. If you’re like many home buyers or current owners, you’re considering your options for a cheap home loan.

The good feeling has been replaced with a bad reality. Mortgage stress. We know we’re doing the right thing by making sacrifices to pay off our home, but some of us are feeling the sacrifices are becoming excessive.

If more than 30% of your income is being used to cover your mortgage repayments, that is considered excessive and places you at risk. It is estimated that about one-quarter of mortgage holders are at risk of mortgage stress (Roy Morgan).

Increased interest rates are a major contributor, but there are other factors:

  • Prices for goods and services are increasing.
  • Wages aren’t increasing at the same rate as inflation.
  • The value of homes is declining creating a negative loan to value ratio.

Stress like this can be a strain on your finances which impacts your lifestyle, which in turn can contribute to an unwelcome level of emotional pressure.

However there are ways to reduce this stress.

 

What Do You Need To Do?

Step 1

Gather all the information you have about your current loan:

  • Interest rate
  • Fees and charges (including exit fees and ongoing fees)
  • Length of the loan (25 years? 15 years?)
  • Redraw options
  • Any penalties that may apply
  • Frequency of repayments and amount of fortnightly or monthly repayments
  • The estimated value of the property
  • The Lender’s Mortgage Insurance rate.

 

All the information should be easily accessible in the documentation provided by your current lender.

 

 

Step 2

Review your monthly commitments.

  • Food
  • Entertainment
  • Transport
  • Health and medical
  • Utilities and services
  • Subscriptions
  • Education
  • Clothing
  • Other loan repayments
  • Donations
  • Savings
  • Miscellaneous expenses

 

Step 3

Combine the monthly commitments from Step 2 with the true monthly cost of the mortgage repayments from Step 1 and compare the result against your monthly income. Our handy Budget Calculator can assist with calculating the net result of incoming and outgoing.

It’s important to have a clear view of your financial situation so that any further decisions are made with full knowledge.

 

 

Step 4

There are many levers that could be pulled at this point to ensure that the balance sheet shows an income greater than the outgoing.

The most important lever is your home loan. Is it a cheap home loan? Not an inferior home loan, but a home loan with the lowest interest rate and lowest fees. There are a variety of home loan packages that can be used to suit your individual circumstance.

By comparing different lenders and loan products, you may be able to find a home loan with a lower interest rate and fewer fees, which could significantly reduce your mortgage repayments and alleviate some of the financial stress.

A lower interest rate doesn’t always mean a cheap loan. You should consider other factors such as the loan features (such as a redraw facility and offset account), flexibility, loan term, and customer service before deciding.

You will also want to consider whether variable rate home loans or fixed rate home loans are more suitable. Here are a few examples of our latest home loan interest rates.

 

Step 5

If you’ve found a cheaper home loan option, it may be worth refinancing your current loan to take advantage of the savings. Refinancing involves taking out a new loan to pay off your existing loan. This action could save you thousands of dollars over the life of the loan.

However, it’s important to weigh up the costs and benefits of refinancing, as there may be exit fees, application fees, and other costs associated with switching loans. You will know the answer to this because you have done your due diligence at Step 1.

 

 

Step 6

Once you’ve secured a cheaper home loan, it’s important to continue to make extra repayments if you can afford to do so. This could help pay off your loan faster and reduce the total amount of interest paid over the life of the loan.

There are other strategies to reduce mortgage stress, such as downsizing to a smaller property, renting out a spare room, or seeking financial advice from a professional.

By taking the time to review your current loan, shopping around for a cheaper option, and making extra repayments, you could potentially save thousands of dollars and alleviate some of the burdens of home ownership.

 

Not Experiencing Mortgage Stress?

Regardless, reviewing your home loan is something that should be done regularly. There is no need to wait for mortgage stress to emerge.

A cheap home loan makes sense at any time, no matter the economic situation. There are no lenders who thank borrowers for paying a higher interest rate throughout the lifetime of the loan. The money saved with a cheap home loan is better used to pay off the loan amount with extra payments.

 

Thinking of a New Home Loan?

The reality of increased interest rates and the talk of mortgage stress may be preventing those eligible from considering applying for a home loan.

Home ownership is still a widely held aspiration in Australia. It provides owners with security of housing tenure and long–term social and economic benefits.

Those entering the home ownership market should look for a cheap home loan so that their commitment is as achievable as possible. The current upward trend in rates is a reminder that prospective homeowners need to consider the possibility of rates increasing further in the future.

 

 

There are a few strategies that can be used to mitigate the risk of future interest rate increases.

  • Consider fixed rate home loans
  • Set up an offset account
  • Always review comparison rates
  • Make additional repayments on the loan
  • The loan term – does it have to be 25 years?

 

Taking on a home loan is a significant financial commitment, and it’s important to carefully consider all the factors before deciding. By understanding the potential risks and strategies for mitigating them, prospective borrowers can make an informed decision about whether a home loan is right for them, and what type of loan will best suit their needs. Just make sure it is a cheap home loan.

At Reduce Home Loans, we’re happy to assist you with a home loan comparison and discuss the options with you. Get in touch to speak with a home loan expert at Reduce Home Loans.

 

Any statements are general in nature and do not take into account your financial personal situation, objectives or needs. You should consider whether any statement/s is suitable for you and your personal circumstances. Before making any financial decision, consider your circumstances and the product disclosure statement.

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