Whenever the Reserve Bank of Australia has raised interest rates in recent months, Jessica’s bank has given up on the hike.
He changed his budget every month and tried to cut his expenses so he could keep saving money.
“I wanted to keep a savings reserve, but that reserve shrunk each month with each increase in interest rates,” he told NCA NewsWire.
Eventually, Jessica realized she had to do something else.
After a friend said their interest rate at another bank was lower, Jessica called her lender and asked for a better deal.
“It was that simple: I spoke to someone on the phone and they took me 0.5% off my interest rate. I was so happy, “she said.
Finspo co-founder and chief executive Angus Gilfillan told NCA NewsWire that simply requesting a better deal from your bank could be a quick and easy option to improve your current rate.
“However, you could lose more competitive options in the market if you stop there,” he said.
“You might even go the DIY path to find the best deal, but comparing all the repayment offers, rates, exchange costs, features and benefits of the thousands of available loan options can be quite tricky.
“So one of the best ways to compare apples to apples is to talk to a mortgage broker.”
Even if your bank offers a better deal, Mr. Gilfillan said it might still be worth refinancing to maximize your savings.
“Many people have put refinancing in the ‘too hard’ basket given how stressful it was to start their home loan,” he said.
“But without the emotional roller coaster of buying a property, the process of getting a new home loan – refinancing – can be a lot less overwhelming and worth it.
“In fact, avoiding the mortgage loyalty tax by refinancing regularly can have a huge impact on your savings.”
For a $ 500,000 mortgage, Mr. Gilfillan said the extra interest savings amounted to $ 91,000 on a 30-year home loan.
Mr. Gilfillan also recommended people with a clearing account to make the most of it.
“Make sure you use your clearing account as much as possible, as the benefit can be greater than having balances in the transaction account or savings account interest rates,” he said.
He suggested that people make a lump sum payment if possible.
“Every dollar counts towards reducing your loan principal, which in turn dramatically reduces the interest you will pay over the life of your home loan, especially when rates rise,” Gilfillan said.
“Just check with your lender if they charge a fee for making extra repayments.”
Editing your refunds could help too, he added.
“By simply switching from monthly to fortnightly payments, you will contribute the equivalent of an additional monthly repayment per year, which may not be overly obvious to you, but it can make a huge difference to the interest you pay over the life of the loan, “he said.
The RBA this month raised its cash rate target by 25 basis points to 2.85%.
Further hikes are expected in the coming months as the nation battles high inflation.
Over the year to September, the CPI inflation rate was 7.3%, the highest in over three decades.
Inflation is expected to peak around 8% by the end of the year.
“The board plans to raise interest rates further in the coming period,” RBA Governor Philip Lowe said this week.
“It is closely monitoring the global economy, household spending and wage and pricing behavior.
“The magnitude and timing of future interest rate hikes will continue to be determined by incoming data and the board’s assessment of the outlook for inflation and the labor market.
“The board remains steadfast in its determination to bring inflation back to target and will do whatever it takes to achieve it.”
BASIC VARIABLE INTEREST RATES OFFERED BY THE FOUR LARGE BANKS:
- CBA – 4.44 per cent;
- NAB – 4.49 per cent;
- NO – 4.44 per cent; Other
- Westpac – 4.24 per cent.
* Each bank has various terms within their respective packages. Smaller lenders also offer comparable rates.
Originally published as How One Simple Deed Could Save You Hundreds of Dollars