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There are times in our financial lives when all the portents are screaming out for action. For many of us, this is one of those times!
Consider these two contradictory facts.
Home loan interest rates are the lowest they’ve been in more than 50 years. Yes 50 years!
Most households and even investment property holders are paying mortgage rates well above the historic lows on offer. Which begs the question…. WHY aren’t you cashing in?
DID YOU KNOW VARIABLE RATES ARE AS LOW AS 4.65%?
Why would people keep a loan that is costing them real money?
I don’t mean to offend anyone “but” to be honest there are many reasons, such as, ignorance, out of sight out of mind; laziness or couldn’t be bothered doing anything about it; too busy; not my field of expertise; comfortable with current arrangement; don’t want to upset the bank and the most common “I really had no idea”– and on and on and on.
Well, I can’t tell you what to do because, if you’re like most people (including me), you’ll resent anyone telling you what to do and you won’t do it so, instead, I’ll simply tell you what it might mean to a person currently tied to an unseasonally high interest rate on their home loan who decides to switch to a more competitive rate
All I ask is after reading this blog is that you think about what you want to do with the information. Ultimately it’s your choice.
For starters, exit fees (once upon a time high exit fees from home loans was a real obstacle to people wanting to switch to a new, more competitive lender) are now a thing of the past and banks have even waived application fees. Some even pay you to refinance to them!
Yes, there was a time you paid the bank to leave it after you had paid the bank to become one of its customers! Not any more however – but they won’t tell you this.
But even though the rules have been relaxed, dealing with banks is still not a walk in the park for most people. Imagine an ordinary person walking into a bank to apply for a home loan – which can be a daunting task in itself. Who does the bank employee work for? The bank, of course, so the employee is obliged to put the bank’s interest before the welfare of the walk-in customer. If you had a boss what would he tell you to do in this instance?
However, an independent and (importantly) experienced mortgage broker who understands the system works for you – the borrower – and knows how to negotiate the best possible interest rate from the bank.
But what do I mean by “experienced” broker? Well, when you walk up to a teller and ask for advice do you know if it’s that person’s first day on the job or their 10th year anniversary? Obviously this is what I mean by experienced. I’ll admit that writing a loan for a first home buyer is reasonably easy as they have minimal debt, an adequate deposit and a reasonable objective in sight. However writing a loan(s) for a savvy investor, with multiple properties who wants to continue to invest for the unforeseeable future is extremely complicated.
But I digress. Now imagine you have a $400,000 mortgage over the standard 30 years at the bank friendly rate of 5.10%. That means your monthly repayments are $2,171 per month. Now if you switched to a broker secured rate of 4.65% at $2,062 per month you could go one of two ways. If you maintained the earlier monthly repayments of $2,171 you would pay off your loan 3 years sooner saving you $40,109 in interest. And all you had to do is review your options.
Alternatively if you were happy to stay the course for 30 years you could reduce your monthly payments to $2,062.55 – and have an extra $109 discretionary spending every month.
The choice may appear simple – however at this point I need to point out that $109 per month is more than enough to cover the repayments on an investment property which could see you acquire equity gains in excess of $300,000 over the next 20 – 30 years based on a modest purchase price of only $350,000, and then there are also the tax advantages – but that’s for another blog.
If either of those scenarios appeal to you, call me and I’ll tell you how you can pay the bank less and pay yourself more!
Director - BIG Property Investments