Interest rates have gone down – so what should you do?
After plenty of speculation, the RBA has recently dropped the cash rate twice and we now have record low interest rates across the lending market. Not only are there great rates on offer, but banks are falling over themselves offering incentives to win your business.
So, what should you do? Here are some avenues you may wish to consider to get the most out of the fierce competition and your lending.
Ask your current bank for more discount
To make sure you are maximising the interest rate discounts available from your current lender, asking for additional pricing is a great place to start. Your mortgage broker can negotiate the best deal possible and act as an advocate on your behalf to ensure the lender looks after you well. If you have previously not done this with your current loan or for a long period of time, now is the time to act because it’s highly likely you will be rewarded.
Look at fixed rates
Fixed rates across the board are currently sharper than ever and continue to be a great tool to not only save a bundle on interest but also lock in for repayment certainty. If you have never considered fixing because of the lack of flexibility, then perhaps it’s time to reconsider. Many banks not only allow you to pay extra into a fixed product, but some allow varying degrees of offset, being less restrictive as we’ve previously seen. Of course, there is always the capacity to have a split fixed and variable structure to get the best of both worlds, a strategy we are seeing clients take advantage of at an increasing rate.
Look at refinancing
How does your current lender compare in the market and have they passed on the interest rate cuts as you would have liked? If your loan is more than a few years old, there’s a good chance it may not be as competitive as today’s offerings, so it is maybe a good chance to strike while the iron is hot and move to a snappy rate while they are available. The bonus of worthwhile cash rebates and / or frequent flyer miles also adds to the appeal of moving lenders to save money.
Pay principal on your investment loans
Once considered a foreign proposition, paying principal on investment debt is becoming increasingly common. To incentivise mortgage holders to pay off their debts, banks are pricing principal and interest loans more cheaply than their interest only counterparts, making customers rethink the way in which they structure their debts. Remember, whilst your overall repayments will increase, the loan balance will consequently decrease, seeing your equity position grow. Of course, we also recommend that you speak to your accountant to seek their advice relative to your own unique circumstance.
Sounds like a false economy, but there is logic behind this strategy. If you are confident that after the rate cuts and the relevant adjustments made by your lender to your rate is adequate and you are happy with your arrangements, sit tight. Resist the temptation to adjust your minimum repayment to fall into line with any interest rate drop you’ve been given. The net result will see you pay your debt down quicker and get ahead on your mortgage which, is ultimately what all mortgage holders aim to do.
Contact your broker for a review
To get a clear picture of where you sit and what direction you should take, a review with your mortgage broker is the obvious first port of call. Your broker will be able to weigh up all options and give you the best information so you can make an informed decision. Get FY2020 off to a great start and contact the Blackburne Mortgage Broking team to start saving even more on your home loan.