Home loan customers could be paying extra money to their bank without even realising
IT’S a common pitfall for home loan customers — and one that is costing them thousands of dollars over the lifespan of their mortgage.
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ALMOST half of the nation’s mortgage customers could be unnecessarily handing over thousands of dollars a year to their bank in interest costs without even realising.
Alarmingly, 85 per cent of borrowers at one of the nation’s biggest banks have monthly repayment plans in place which may be costing them dearly.
Analysis by News Corp which looked at the repayment frequencies of home loan customers at four lenders — including two of the big four banks — showed 41 per cent of mortgage holders have monthly mortgage contracts.
Another 41 per cent pay fortnightly and 18 per cent pay weekly.
Figures by financial comparison site Finder.com.au show the interest costs associated with making monthly repayments on the average variable 30-year $300,000 loan with a rate of 5.35 per cent was up to $60,000 more over the life of the loan than if they paid weekly or fortnightly.
This is due to customers making only 12 monthly payments per year as opposed to 26 repayments per year — or the equivalent of an extra month — if they made fortnightly repayments.
Over this loan term a customer will pay about $303,000 in interest costs by paying monthly or about $244,000 in interest by making fortnightly repayments.
ME Bank’s head of home loans Patrick Nolan said for customers it’s a simple case of “the faster you pay off your loan the less interest you need to pay.”
“If you can afford to increase the frequency and amount of your home loan repayments, you could potentially save thousands of dollars in interest and shave years off your mortgage,’’ he said.
“Aligning your payday with your mortgage payments can also make budgeting easier and help you pay more off on your mortgage.’’
Making monthly repayments is popular among property investors who aim to keep their interest costs high to reap the tax gains from negatively gearing property.
Mortgage Choice spokeswoman Jessica Darnbrough said mortgage repayment frequencies often came down to a customer’s individual circumstances.
“There are more negative gearing benefits for investors paying monthly but for owner occupiers how they make their mortgage repayments comes down to how often they get paid,’’ she said.
“When you are taking our your home loan or refinancing chat to your bank or mortgage broker and understand whether paying fortnightly would benefit you.”
The Reserve Bank of Australia will meet on Tuesday to make their monthly rates announcement — and according to the Australian Securities’ Exchange’s cash rate indicator there was a 71 per cent chance on Friday that they would drop the cash rate to two per cent.
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Originally published as Home loan customers could be paying extra money to their bank without even realising
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