Low rates should trigger mortgage review

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MEDIA RELEASE Australia’s sluggish economy and weaker housing market has placed significant pressure on the Reserve Bank of Australia and monetary policy levers, with mortgage holders needing to take this opportunity to review their home loans, according to HLB Debt Advisory director, Betty Preshaw.

While the current cash rate of 0.75 per cent is unprecedented – dropping 0.25 per cent earlier this month – the business cycle trough is unlikely to be a permanent fixture, with rates expected to rise once the broader economy regains momentum. 

According to Ms Preshaw, with rates so low it feels as though investors can borrow free money if they choose the right lender and consistently review debt levels.

“Not all lenders are passing on the full rate cut to borrowers, and there’s a lot of variance in pricing across lending institutions.

“Borrowers need to be doing their research to ensure they are benefiting from the current low interest rate environment,” she said.

Ms Preshaw believes if borrowers have been with the same lender for more than two years, they are likely to be paying too much in interest.

“Banks love loyal long-term customers, because they can charge loyal customers a higher interest rate. The longer you set and forget your home loan or any other loan, the higher the rate you’re likely being charged,” she said. 

With rates remaining at historical lows, she recommends mortgage holders consider the following when reviewing their debt:

  • Refinance – provided borrowers aren’t on a fixed rate, this needn’t be a costly exercise. In most instances, even when you consider the discharge fees of approximately $700, the benefit of the competitive rate received with the incoming lender outweighs the costs
  • Taking out debt is a large impost on family expenses and, as mortgagees, we live with this expense for 30 years or more, so be sure to shop around in receiving the best possible rate
  • If you don’t fit one lender’s policy, you might fit another’s policy. Policy variance is common among lenders. For example, if you have just started work and are still on probation, you do not need to wait for your probation period to end, there are lenders that offer super competitive rates to consumers that are still on probation
  • Failing to renegotiate an expiring fixed rate loan or interest only loan can also potentially cost you. A fixed rate home loan or interest only loan will be automatically rolled into a variable rate loan with no discount with most lenders if you don’t ask the question
  • The low interest rate environment has become the new normal, so much so that a lot of the lenders are offering a super competitive fixed rate, lower than any variable rate on the market. Fixed rate loans can bear large break costs if broken early, so understanding the fixed rate contract you are entering with your lender is important.

Ms Preshaw said ultimately borrowers shouldn’t feel as though they’re locked in (unless they have a fixed rate loan) and unable to negotiate a better rate, irrespective of the time in the cycle.

“The wisest borrower is always keeping their lender on their toes. Annual rate checks are a must and ringing your bank to see if your mortgage can attract a more competitive rate is so important and can make a material difference over the life of the loan,” she said.