What you should do with your mortgage now the Reserve Bank of Australia has kept the cash rate on hold at two per cent

THE RBA has left the official cash rate on hold at two per cent today again. We explain what you should know if you’ve got a mortgage.

THE Reserve Bank of Australia has left the official cash rate on hold at two per cent today.

For the fourth consecutive month the cash rate failed to move leaving homeowners to revel in the record-low interest rate period that is expected to continue for some time yet.

The last move was in May when the RBA dropped the cash rate by 25 basis points but since then it has rested at the historically-low level of two per cent.

Figures by financial comparison website InfoChoice show on a $300,000 30-year mortgage the average standard variable rate is 4.53 per cent and the monthly repayments are $1525.

But mortgage customers can do much better than this — according to their database the lowest variable rate is 3.79 per cent and the monthly repayments are $1396.

COMPARE: Home loans to get a good deal

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Homeowners should be maximising the low-interest rate environment by paying extra into their mortgage and scale ahead on their repayments.

Fixed rates remain very similar to variable rates — the average three-year fixed rate is 4.38 per cent and the monthly repayments are $1498.

But the lowest three-year fixed rate available is 3.89 per cent and the monthly repayments are $1413.

InfoChoice.com.au’s general manager Jon Savaris urged homeowners to take advantage of the record-low rates.

“If you are expecting a decent tax return, why not put it straight into your mortgage,” he said.

“While interest rates are low, make sure you keep your repayments above the bare minimum required by your bank.

“By paying extra you’ll gradually build up a buffer that could come in very handy when interest rates begin to go up again down the track.”

However for savers the rates remain low and continue to deliver piddling returns of just two to three per cent for those with stashed cash.

Some of the best fixed and variable rates remain below four per cent. Picture: iStock.

And house prices aren’t showing any signs of slowing down — new CoreLogic RP Data figures show capital city dwelling values across the eight capital cities rose by 0.3 per cent in August.

Sydney and Melbourne house prices continue to lead the pack — in the past 12 months Sydney house prices rose by 17.6 per cent and in Melbourne they rose by 10.6 per cent.

In the same period house prices in Brisbane rose by 3.9 per cent, Adelaide 1.8 per cent and Hobart by 1.5 per cent.

They fell in all other capitals including Darwin by 4.6 per cent, Perth 1.8 per cent and Canberra 0.9 per cent.

FIVE WAYS TO PAY OFF YOUR MORTGAGE FASTER

1. INTEREST RATES

Many home loan customers have no idea what their interest rate is so phone your bank, look online or pull out your latest home loan statement.

Figures from comparison website RateCity also show the average standard variable rate on a $300,000 30-year home loan is 4.67 per cent and the monthly repayments are $1550.

On the same loan the average three-year fixed rate is 4.46 per cent and the monthly repayments are $1512.

So if you are paying more than this then you can quickly work out whether you are paying too much.

2. OFFSET ACCOUNT

This is an everyday transaction account that is linked directly to your home loan and is common among most variable rate loans.

It allows the customer to park excess cash in their day-to-day account and reduce their monthly interest bill — so if you don’t have one of these accounts make sure you phone up your bank and see if you can get one.

It will shave your interest costs dramatically. For example on a $300,000 loan if you have $10,000 in an offset account you will only pay interest on $290,000.

3. FEES

Home loans usually come with multiple fees that often secretly sting customers.

This includes annual fees, application costs, redraw fees and exit costs.

Review all your fees on your account and always look at the comparison rate on rival products as this rate factors in all the additional fees and charges associated with the loan.

4. EXTRA CASH

For those lucky enough to have a bit of extra cash, think twice before spending it.

Many Australians are receiving their tax returns at this time of year so seriously consider tipping those additional funds into your mortgage.

By paying off your home loan debt faster you’ll significantly save on interest costs and own your home sooner.

5. FIX?

Lenders are continuing to drop their rates so there are plenty of good deals to be had on both fixed and variable rate loans.

The lowest rate on a $300,000 30-year home loan for both fixed and variable is 3.89 per cent and the monthly repayments are $1413.

So shop around for a better deal but make sure you contact your lender first to see if you can get a better offer from them as it will be much easier and sometimes cheaper than refinancing.

This reporter is on Twitter: @sophieelsworth

Originally published as What you should do with your mortgage now the Reserve Bank of Australia has kept the cash rate on hold at two per cent