Five things your home loan lender won’t tell you as RBA rates on hold

AS the RBA keeps rates on hold, experts reveal how banks won’t always tell home loan customers how they can save money. Here’s five tricks to help you pay back debt faster.

BORROWERS could be paying off their mortgages at a slower pace because their lender is failing to explain some easy tricks to saving cash.

Unsurprisingly the Reserve Bank of Australia board has kept the cash rate on hold again today at 1.5 per cent — the longest stretch without any move — but customers are being urged to take a proactive approach to shaving down their debt.

Interest rates remain at record lows but with lenders dealing with lower margins and industry experts say customers must get on the front foot and hunt for better deals.

Here’s five things your lender probably hasn’t told you that can help save you money.

Home loans can come with hefty annual fees and charges.

1. FEE WAIVERS

Home loans can come with expensive charges including annual fees that run into hundreds of dollars.

It pays to ask for a fee waiver particularly if you are a new customer — sometimes lenders will do this just to get your business.

They may wipe the annual fee for one year and this is certainly better than nothing.

Home Loan Experts’ managing director Otto Dargan said, “Banks sometimes waive fees for customers, however if your loan is over $250,000 then it’s usually best to ask for a rate discount instead.”

A rate discount over the life of the loan is likely to be more beneficial, so ask your lender to crunch the numbers for you and see which options leave you better off.

2. GET A RATE DISCOUNT

Don’t be afraid to call up your financial institution at any time during your loan term and demand a better interest rate.

If you are on a variable rate deal and your loan-to-value ratio is below 80 per cent you are in the driver’s seat.

INTEREST RATES: What rates will do in 2018

The good news is it’s relatively easy to switch lenders if your bank doesn’t come to the party and you have a fair chunk of equity in your home.

One of the easiest tricks is to look at what your lender is offering new customers and then compare your own rate — if you are paying more than pick up the phone, dial your lender and ask to speak to the retention team.

Throw the numbers at them and demand a better deal or threaten to walk.

For owner occupiers you should be paying a rate with a “3” in front and for investors you should be paying as close to the four per cent mark as possible.

3. LENGTH OF LOAN

Borrowers don’t have to sign up to 30 year loan terms — lenders will try and push customers into this but you can demand a shorter loan term.

Mr Dargan said customers should focus on paying extra on their loan to bring down the principal faster.

Home Loan Experts managing director Otto Dargan said banks often won’t explain to customers how to pay back their debt quicker.

“Banks don’t normally tell you the simple things you can do to pay your loan off faster,’’ he said.

“For example, most loans are set up with a default term of 30 years, however you can increase the size of your repayments and cut years off your home loan.”

4. PAYMENT FREQUENCY

Shaving down your interest repayments can easily be done by speeding up your repayment frequency.

Online mortgage broker channel Uno Home Loans’ chief financial officer Jason Azzopardi said the reason being that “interest is calculated daily on your outstanding home loan balance”.

Online mortgage broker channel Uno Home Loans’ chief financial officer Jason Azzopardi said increasing your repayment frequency can save money.

“Therefore the higher the daily balance, the more you pay in interest,’’ he said.

“Monthly repayments are the default option offered by lenders for this very reason, however, a simple phone call to your lender can change your payment cycle to weekly or fortnightly.”

This will bring down your loan balance throughout the month and reduce the amount of interest being charged.

5. OFFSET ACCOUNTS

Most lenders are quick to spruik offset accounts — a day-to-day transaction account that sits alongside your loan.

Any cash keep in these accounts reduces the interest charged on your loan — for instance, if you have a $300,000 home loan and $10,000 resting in an offset account you will only be charged interest on $290,000.

But Mr Azzopardi warns that these accounts can be expensive and lenders will be unlikely to point this out.

“The majority of lenders will charge an annual package fee where a customer insists on an offset account, this fee averages between $300-$400,’’ he said.

He said for an offset account to be beneficial a customer usually needs to have at least $10,000 held in there for an entire year.

@sophieelsworth