Reserve Bank keeps interest rate on hold, no room for complacency from borrowers

THE Reserve Bank has again kept interest rates on hold today, but there’s no room for complacency from borrowers. Here are the home loan mistakes you must avoid.

THE cash rate is on hold again today but are you guilty of making these three biggest home loan mistakes?

Mortgage interest rates on variable and fixed rates loan remain in many cases lower than the four per cent mark but you could be costing yourself more money without even realising.

These are some of the worst home loan errors any borrower can make.

1) Paying a high interest rate

The Reserve Bank of Australia has kept the cash rate at 2 per cent again today but there’s no time for complacency from borrowers.

Data from financial comparison website Canstar’s database shows the difference between the lowest and highest standard variable interest rate on a $300,000 30-year loan is a whopping 2.26 per cent.

The site’s spokeswoman Justine Davies has warned borrowers this could result in them dishing out tens of thousands of dollars that they could be keeping in their own pockets.

“The highest rate on our database is 6.11 per cent and the lowest rate is 3.85 per cent,’’ she said.

“Reducing your home loan interest rate from the current average to say 4.35 per cent could save you an easy $79 per month.

“Sometimes you don’t even need to switch banks, just give your current lender a call, mention what type of interest rate you could get elsewhere and ask them what they can do for you.”

Reserve Bank of Australia Governor Glenn Stevens has kept the cash rate on hold at two per cent.

2) Paying monthly instead of weekly or fortnightly

There is an easy trick to paying extra — simply adjust your payment frequency Davies said.

“The beauty of paying weekly or fortnightly instead of monthly is that if you simply divide your monthly repayment in half it tricks you into making an extra payment each year because there are 26 fortnights but only 12 months,’’ she said.

Based on a $300,000 30-year loan paying fortnightly instead of monthly could result in you paying off your loan 4.5 years earlier and saving more than $20,000 in interest costs.

Another good idea is to also have a mortgage offset account — a day-to-day transaction account — that reduces the interest charges on your loan.

For example on a $300,000 loan if you have $10,000 in your offset account you will only be charged interest on $290,000.

3) Failing to review your home loan

Mortgage broking firm Home Loan Experts’s managing director Otto Dargan says it’s critical borrowers frequently review their home loans to check up on the fees and charges they are paying.

“You should review your loan two years after it was set up, then every year thereafter,’’ he said. “Your mortgage broker should do this for you and let you know if it is no longer competitive.”

Many lenders have been guilty in making out-of-cycle interest rate moves in the past six months so it pays to check up on the interest rate you are paying to make sure you are not paying too much.

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Originally published as Reserve Bank keeps interest rate on hold, no room for complacency from borrowers