What to do with your home loan now rates are on hold

Many economists are predicting that the rate-hiking cycle is near its end, so what should you do with your home loan whether you’re a new customer or looking at refinancing?

The RBA has kept interest rates on hold for three consecutive months, leading many economists and analysts to speculate that the rate-hiking cycle is near its end.

So, it’s an appropriate time to assess how your loan has changed over the past 18 months and whether you should consider refinancing to get a better rate. The first step is to compare your interest rate to what’s being offered in the market now.

New home loan customers applying for principal and interest owner-occupied loans are being offered rates between the late 5 per cent range and late 6 per cent range online. But a mortgage broker can typically negotiate a better deal for you than what is advertised. Do some research using one of the many comparison websites out there today, and see if there are loan rates being advertised that are substantially lower than your current rate. If so, it may be worth talking to a broker and considering switching.

Given the rate-hiking cycle is near at end you should be looking closely at your home loan. Picture: NCA NewsWire / Max Mason-Hubers

There are fees involved, so your new rate needs to be worth the cost and hassle.

If you don’t want to switch, you might like to consider making changes to your existing loan. For example, would a variable or fixed rate serve you better at the moment? In the past, most of the time the variable rate has been below the fixed rate, and that’s the case today. However, there isn’t much of a gap. So, if you think you might have issues with cash flow in the medium term, a fixed rate might be worth considering given you won’t pay much of a premium to lock in that security. But bear in mind that many economists predict the Reserve Bank will lower rates next year.

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WHAT TO DO IF YOU’RE BUYING A HOME AND NEED A NEW HOME LOAN

If you’re buying property and need a new loan, I have two essential tips:

1. Make sure your loan allows you to make extra repayments without penalty, and with redraw capacity in case of emergencies. Alternatively, ask for a free 100 per cent offset account so that all your savings and salary deposits will reduce your daily interest charges.

2. Ensure the loan offers repayment flexibility. If you can pay weekly or fortnightly instead of monthly, it will save you money because interest is calculated daily.

WHAT TO DO IF YOU’RE REFINANCING YOUR HOME LOAN

If you’re refinancing, here are five tips from Oxygen Home Loans:

1. Do not accept the advertised rate – Most lenders are willing to negotiate on variable rates, especially when a professional mortgage broker is acting on your behalf.

2. Be aware of the costs – You’ll likely have to pay a discharge fee on your current loan and possibly an establishment fee on the new one, along with other charges.

3. Don’t fall for ‘honeymoon’ rates – They’re very enticing but often convert to higher than usual rates later. It’s typically better to negotiate a discount for the life of the loan on a package arrangement.

4. To fix or not to fix? – Fixed rates provide certainty but less flexibility. Only some lenders allow additional repayments without penalty, and break fees can be very expensive if you need to sell during the fixed period.

5. Do you want fries with that? – Your other banking needs, such as a transaction account with an ATM card and/or a credit card, can be packaged with your loan.

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WHY WORK WITH A MORTGAGE BROKER?

Working with a broker gives you several advantages.

They will assess your financial position and identify the lenders most likely to approve your application. This is important because all loan applications are recorded on your credit history, and a series of knock-backs within a short period doesn’t look good.

Your broker will then leverage their relationships with your preferred lenders to negotiate the best rate possible for you.

On top of that, they’ll do all the paperwork for you, making the process easier and simpler.

* John McGrath is the founder, Managing Director and Chief Executive Officer of McGrath Estate Agents

Originally published as What to do with your home loan now rates are on hold