Australian interest rates have increased by close to 50% through the course of the past year. Currently the Australian interest rate ranks as one of the highest amongst international peers, as shown in figure 1.
While this is testament to the strength of the Australian economy, these rises, coupled with increases made independently by the major banks, have greatly increased the cost of servicing a loan.
Even with a surprise October decision to hold rates steady, decreasing the cash rate seemingly is not in the current RBA discussion. This makes the value of checking that you are in the right loan with the most competitive interest rate and fees possible. Finding a loan with the same benefits, however with a lower interest rate can save you thousands of dollars in interest, over the lifetime of a home loan.
In fact, as figure 2 shows, for an average loan of $400,000 on the current standard bank rate of 6.81% pa with a saving of just 0.40% pa in interest over 25 years could save the borrower - $100 in repayments per month, or $1200 annually - however most importantly - save over $35,000 in interest over 25 years.
The second option you may consider is maintaining the current repayment level, if you can afford it, while putting the $100 back into paying off your loan. By decreasing the rate and maintaining the repayments you could save over $60,000 further in interest, and pay off your loan more than 3 years earlier.
These are significant savings that help you create room to absorb future interest rate rises should they occur, or allow you to pay off your home loan sooner.
By Brian Kelly
Principal, Lending & Insurance
This information contained in this newsletter was compiled by WHK Pty Ltd ABN 84 006 466 351 (WHK) and WHK Financial Planning Pty Ltd ABN 51 060 092 631 (WHKFP). This is an information service only and is not financial advice. WHK and WHKFP do not provide any warranty regarding the accuracy and completeness of information in this newsletter. All material contained in this newsletter is based on opinions, conclusions and forecasts that are reasonably held at the time this newsletter was compiled. WHK and WHKFP assume no obligation to update the material to reflect any changes. WHK, WHKFP, their Directors, employees and agents disclaim all liability for any error, inaccuracy or omission from the information contained in this newsletter or any loss or damage suffered by the recipient or any other person directly or indirectly by relying on the information to the extent permitted by law.
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