Before the Next RBA Decision, Do You Know What Your Home Loan Is Costing You?

The Reserve Bank of Australia will announce its next cash rate decision on 11 August. Going into the meeting, the cash rate is 4.35%.

For borrowers, attention often turns to whether rates will move and what lenders will do next. But there is a more immediate question worth asking.

What are you currently paying for your home loan?
If you have had the same loan for several years, or if you are not currently in the fix home loan – it may be worth checking the interest rate, fees and features you are paying for and how they compare with other options available.

Start with your actual interest rate
Check the rate currently applied to your loan, rather than the rate you originally signed up for. For variable rate borrowers, the rate may have changed several times since the loan was established. It is also worth checking how your rate compares with the rates your lender currently offers.

A difference in interest rates can affect repayments and the total interest paid over the life of a loan, but the advertised rate should not be considered in isolation.

Check what you are paying in fees
Look at annual package fees, account fees and other ongoing charges associated with the loan.

If you are considering refinancing, there may also be costs involved in closing your existing loan and establishing a new one. Fixed rate borrowers may face additional costs if they refinance before the fixed period ends. These costs should be considered when calculating whether changing loans would actually leave you better off.

Are you using the features included in your loan?
Offset accounts and redraw facilities can be useful, but their value depends on how you use them.

Check which features are included with your loan, whether you use them and whether you are paying additional fees for features you no longer need. The right loan is not necessarily the one with the longest list of features.

Your circumstances may be different now
Your financial position when you first took out the loan may look quite different today. Your income, loan balance, property value or financial priorities may have changed. Property investors may also have experienced changes to rental income, property expenses or their plans for the investment.

These factors can affect which loan options are appropriate for your circumstances.

Refinancing is not always the answer
Finding a lower advertised rate does not automatically mean you should refinance. The potential interest savings need to be compared with switching costs, ongoing fees, loan features and the terms of the new loan.

In some cases, staying with your current lender may make sense. You may also be able to discuss your existing rate with your lender without refinancing.

Look beyond next week’s rate decision
Why RBA decisions matter because the cash rate influences interest rate, including mortgage rates, next week’s decision only affects the minimum amount a borrower pays. RBA decision often has little influence over the loan products at the features and flexibility such as offsetting account and withdraw capability.

So rather than trying to predict the next move in interest rates, it can be more useful to understand your current loan product and whether it still suits or your circumstances.

If you are unsure where to start, speaking with a mortgage advisor can help you compare your current loan with the options available and understand the costs involved.

To book your free, no obligation digital consultation, click the link below:

Book a Quick Chat
Request a Call-Back