How does yours compare? The thing is: datahouse mozo tells me you can do a whole lot better.
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What you can do about it
While 2.5 percentage points might be the standard pricing/profit for your garden-variety lender, the great ones are putting only about 1.5 points on top.
In fact, the best loans (crucially, with offset accounts) look set to soon offer rates of roughly only 5.2 per cent, versus a 6.4 per cent average variable rate pre-cut.
Guess what? That’s not one cut – it’s five. Or almost.
So, without waiting for the RBA, but by merely switching, today you can drastically slash your repayments.
What are those best-value loans (I say “best-value” as I only ever consider those that can offer genuine offset accounts because they are backed by what are called authorised deposit-taking institutions; some non-bank lenders cannot)?
Currently, they’re from new-ish lender Up (a brand of Bendigo and Adelaide Bank), People’s Choice, NRMA Home Loans, loans.com.au and Tiimely Home.
Putting dollars on it…
By how much your repayments could fall
Let’s assume you have a pretty typical $600,000 mortgage and you are today paying that expensive, average 6.4 per cent rate. A move, instead, to 5.2 per cent will save you $436 a month. Imagine that!
But there is a far bigger opportunity from a downwards interest rate cycle. And possibly a once-in-a-mortgage one.
By how much your interest could fall
There is a simple strategy I like to call “Up Stumps But Still Stump Up”.
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You just switch to the best-value deal and then keep paying the same.
Yes, the alternative of pocketing the money probably has you salivating, but you have the chance to turn it into an enormous mortgage interest saving of $235,546 … and debt-freedom almost five years early.
Is that appealing?
Even if you do nothing right now, and don’t switch but do leave your repayments the same, you will forge wonderfully ahead.
This is because you will still be slightly overpaying on your mortgage. Instantly.
On that model $600,000 mortgage of ours, what does it mean if you just go from paying the average 6.4 per cent to 25 basis points less … and keep stumping up?
You will be tipping in $93 a month extra – remember, the same amount you are used to paying now – and save $63,370 on your ultimate interest bill and shave a year off the life of your loan.
So, nod to the lenders not automatically adjusting your scheduled repayments for the interest rate cut. Sure, it sounds bad – but as of the rate cut kick-in date, you will be overpaying on your mortgage without really noticing.
And – guess what? – the market is pricing in a 41 per cent chance of another cut on September 30. So, it may just happen automatically, powerfully, again.
Nicole Pedersen-McKinnon is the author of How to Get Mortgage-Free Like Me, available at www.nicolessmartmoney.com. Follow Nicole on Facebook, X and Instagram.
Advice given in this article is general in nature and is not intended to influence readers’ decisions about investing or financial products. They should always seek their own professional advice that takes into account their own personal circumstances before making any financial decisions.