Our Christmas tree (a real one, of course) arrived this weekend and there are already a few presents underneath.
But the best gifts are ones I can't wrap up and tie with a bow: time with loved ones of course ... and also the fact I've just applied to refinance our mortgage.
![A better mortgage rate? I'll drink to that.](/web/20161210080148im_/http://www.smh.com.au/content/dam/images/g/s/x/f/i/p/image.related.articleLeadwide.620x349.gt33gs.png/1480759077095.jpg)
It's been a frustrating couple of weeks after our mortgage broker found some great deals, only to have the lenders withdraw their special offers before we lodged our paperwork.
But the loan we decided on is still one of the cheapest in the market at 3.73 per cent, and it has all the features we need including an offset account, online banking and access to an ATM network.
We're saving $1120 in interest and $196 in fees a year. There's a one-off exit fee but it's only a few hundred dollars, so we're in the black from day one.
Our current home loan is already pretty competitive, but it's worth optimising because we have a hefty debt, having bought into the Sydney market two years ago. I know that incremental gains can have a big impact over time so I'm keen to get ahead now before rates rise in the future.
I plugged the numbers into the Infochoice extra loan repayments calculator and found if we put that $1316 a year back into our mortgage, we'll save tens of thousands of dollars in interest over the life of the loan.
You can save a lot more if you're on a worse deal to begin with.
Uno, an online platform that gives you tools to act as your own mortgage broker, has calculated that the average Sydneysider could save $3408 a year through refinancing. In Melbourne it's $2532.
Some people could save even more. Comparison site Canstar lists eight owner-occupier loans that are more than 5 per cent. Yikes, what a rip-off!
If you refinanced a $500,000 loan from the most expensive rate on Canstar (5.64 per cent) down to the lowest rate (3.35 per cent) you'd save an astonishing $11,450 a year in interest. If you put that into your home loan, you'd save $123,467 over a 30-year loan and be debt free 12 years sooner.
But before leaping on the lowest rate, look at the total package, including fees, the flexibility to make extra payments, an offset account and other banking facilities. Some borrowers might also want to organise an investment loan secured against their mortgage, so they can invest and claim the interest repayments as a tax deduction. Best to get advice for that.
For me the most essential ingredient is the offset account. It's a savings account attached to your mortgage that earns interest at the same rate as your debt incurs interest, so that one offsets the other. If you have a $500,000 loan and $50,000 in your offset account, you only pay interest on $450,000 but you can still get to your money whenever you need it.
Whether you go through a broker like I did, try out Uno, or apply directly after doing lots of research online, there are plenty of good home loan products that offer functionality along with a sharp rate.
If you're an owner-occupier your starting point could be to find a home loan where the rate starts with a "3". You've got to be prepared to break up with the big banks, but that's really not as scary as some people think it is.
Don't forget that the risk is on the lender's side, not yours. In the unlikely event that the institution holding your mortgage goes under, someone else will take over your loan. If you don't like the replacement, you can always refinance again.
If you switch to a smaller bank or lending institution, you may even find the service and functionality of your general banking improves along with your mortgage rate. Surveys suggest customers of smaller banks and credit unions are more satisfied than those with the big four.
One measure of customer satisfaction is the Net Promoter Score (NPS). A positive NPS means more promoters – who are likely to recommend the brand – while a negative NPS means more detractors.
Pureprofile did a survey of 1851 people in April this year looking at NPS.
The big four – ANZ, Westpac, Commonwealth Bank and NAB – scored an NPS of negative 9.84, lagging the broader banking sector's score of negative 0.21.
In contrast, credit unions scored positive 40.43, Bendigo and Adelaide Bank came in at 20.59 and Suncorp at 19.05. Online bank ING Direct scored positive 38 in a different NPS survey in 2014.
A few people have asked me if they should fix their home loan now that there's talk of interest rates going up rather than down.
I'm not in the advice business and I know that fixing even just part of a loan can provide peace of mind for many people.
But we won't be fixing ours. The problem is that fixed rates are usually higher than variable and if you can put the variable discount into extra repayments or the offset account, then compound interest starts to work in your favour.
Unless rates rise quite quickly and sharply, I think we're better off with variable.
When you're refinancing a loan, there's one obvious trap to avoid. If you have 23 years left and you write the loan for another 30 years and only pay the minimum, then you'll wind up paying a lot more.
Either take out the new loan for 23 years so your minimum repayment isn't too low, or take it for 30 years and voluntarily make higher payments so you have a buffer.
It's the same result but it's all about execution and that depends how disciplined you are.
So what are you waiting for? If you're paying off a mortgage, it's time to look for an early Christmas present.
Caitlin Fitzsimmons is the Money editor for the Sydney Morning Herald and The Age. She writes a weekly column on money and a fortnightly column on our lives at work. Find her on Facebook and Twitter.
0 comments
New User? Sign up