The reason why you should be reassessing your home loan now

THE Reserve Bank of Australia has kept the cash rate on hold at 1.5 per cent, but that doesn’t mean you should be complacent with your home loan. Here are five ways you can save.

HOME loan customers looking to save thousands of dollars in 2018 need to take action immediately to ensure they make some serious headway into their debt.

The Reserve Bank of Australia board has kept the cash rate on hold at 1.5 per cent today, but there’s no time for borrowers to be complacent, instead they need to take action now.

Already six weeks into the new year, making changes to your loan can set you up for some massive savings before the year’s end.

Here are five key tactics that will save you money.

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Make sure you know what your current loan rate is. Picture: iStock

1. RATE MOVES

On a standard $300,000 30-year home loan already eight variable rate deals have been cut in 2018.

And for fixed-rate deals 12 loans have had a rate fall, while six deals have climbed.

This means you need to pay serious attention to your loan rate.

Get out your latest statement and check what it is — many of us have no idea.

This is a good starting point to work out if you can do better and save cash.

2. A GOOD RATE

Financial comparison website Mozo’s database shows the average variable rate is 4.37 per cent and the average three-year fixed rate is 4.08 per cent.

But many borrowers can be snare even cheaper rates so make sure your rate has a “3” in front, particularly for owner occupiers with a loan-to-value ratio of less than 80 per cent.

If it’s higher than this you are getting ripped off.

Home Loan Experts’ managing director Otto Dargan said, “For a home loan with principal and interest repayments a good rate is below 4 per cent and an excellent rate is around 3.6 per cent.”

Home Loan Experts managing director Otto Dargan urges borrowers to seek out getting a more competitive interest rate. Picture: Supplied.

But he warned borrowers, “look at the total cost of the loan over the term that you intend to keep it for.”

3. OFFSET ACCOUNTS

These are essential if you have some extra cash in the bank.

An offset account is a daily transaction account linked to your home and helps reduces the daily interest costs.

For instance, if you have a $300,000 home loan and have $10,000 in an offset account you are only paying interest on $290,000.

Mozo’s spokeswoman Kirsty Lamont said their database has 216 variable home loans (64 per cent) with an offset account attached.

Financial comparison website Mozo spokeswoman Kirsty Lamont said having an offset account can mean you have a loan with a higher interest rate. Picture: Supplied

“The average rate for products that have an offset account is 30 basis points higher than those without,’’ she said.

“If you are looking at getting an offset account you need to make sure that you have a decent amount of money sitting in that account each month and if you can’t stick to that you are better off sticking to a more basic low-rate home loan.”

4. REPAYMENTS

Make sure you are paying fortnightly rather than monthly because this means you will make one extra repayment each year.

It’s also good to try and pay your mortgage in line with your salary, so if you get paid fortnightly setting up fortnightly repayments is a good idea.

Make sure you review your repayments and make them more frequently than monthly to reduce interest charges. Picture: iStock

On a typical loan this could save you about $2800 in interest charges.

5. BEST DEALS

Sniffing out a good home loan deal can be an arduous task but Mozo’s database shows there’s some rock-bottom rates available.

The best lowest variable rate is the Reduce rate buster variable rate loan (80 per cent loan-to-value ratio) at 3.39 per cent.

And for three-year fixed rate deals the best rate is SCU’s my life home loan at 3.69 per cent.

Ms Lamont said lenders are desperate for new business which means borrowers are in the driver’s seat and have the power to secure a good deal.

“With the autumn selling season around the corner lenders are competing as fiercely as ever so the best thing you can do is call your current lender and ask for a better rate,’’ she said.

“If they won’t deliver than compare the market and switch to a lower rate lender.”

So take action now and make sure you can save yourself some serious cash in 2018.

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@sophieelsworth