Is it time to undertake a debt review?
The “unprecedented” record-low cash rate means investors are likely paying too much interest on their loans if they’ve been with the same lender for more than two years, a debt expert has cautioned.
HLB Mann Judd’s debt advisory director Betty Preshaw has indicated that with 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”.
“Banks love loyal long-term customers, because they can charge loyal customers a higher interest rate,” the debt adviser said.
“The longer you set and forget your home loan or any other loan, the higher the rate you’re likely being charged,” she flagged.
Highlighting the benefits of a debt review, Ms Preshaw said “the wisest borrower is always keeping their lender on their toes”.
Borrowers shouldn’t feel as though they’re locked in and are unable to negotiate a better rate irrespective of the time in the cycle, Ms Preshaw said, unless they have a fixed rate loan.
Considering annual rate checks as “a must”, the director said “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’s offered up several things for loan customers to think about when undertaking a review of their debts:
Refinancing doesn’t have to be expensive!
Provided borrowers aren’t on a fixed rate, this isn’t a costly exercise, according to Ms Preshaw.
“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.”
You are living with the debt for a long time!
“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.”
Policy variance is common
Ms Preshaw said that even if you don’t fit one lender’s policy, you’ll probably still fit another’s policy.
“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 loan can also hurt
“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,” according to the director.
Low interest rates are the new norm
“So much so that a lot of the lenders are offering a super competitive fixed rate, lower than any variable rate on the market,” Ms Preshaw flagged.
Fixed rate loans can bear large break costs if broken early though, she cautioned, so understanding the fixed rate contract you are entering with your lender is important.
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