By Guest Blogger, Louisa Sanghera, Principal Broker,
Zippy Financial
Imagine this: your boss calls you into his office and informs you that the way you get paid is going to change.
From now on, your manager says, you’ll keep working the same amount of hours – but you won’t be paid for the last 30 minutes of every day.
“New employees will be paid for all the time they work, because we need to attract new talent. But existing employees? Well, you’ve been here for a while, so you’ll be fine with this new arrangement, won’t you?”
You’d be outraged. Incensed! You’d probably quit, right?
Well, here’s the thing: banks do this quite a bit. They have one interest rate for existing customers, and they offer a whole new lower/discounted rate for new customers.
This means that if you’ve had a home loan for more than a year or two, and you haven’t checked the interest rate recently, there’s a really good chance you’re paying MORE for your home loan than you need to be.
Which means, you’re essentially in the same boat as our hypothetical example at the beginning of this article – as you’re working for free for a certain amount of time each week, as you’re spending extra money on your home loan when you don’t need to be.
Over-paying for your mortgage is not your fault. In fact, most borrowers become quite complacent about the interest rate they are paying, after many years with the same bank. Getting a home loan often seems like a “set and forget” type of deal – once you’ve done all the hard work to get it set up, you don’t really think about it anymore, beyond making your repayments on time.
Here’s a real world example:
I won’t name and shame the actual lender involved, but it’s a major bank. Currently, they offer a variable rate home loan that is:
• 2.79% for existing customers
• 2.72% for new customers
That’s a difference of 0.07%. Now, that might not seem like much… until you look at the actual financial impact.
Say you have a loan worth $700,000. An interest rate difference of 0.07% equates to $490 over 12 months. And this is just over a period of 12 months. Multiply this by several years and the extra unnecessary expenses start to pile up!
Keep in mind that this is an extra $490 per year you’re paying in after-tax dollars. If you pay an average tax rate of around 35%, you would have to earn $750 per year and pay tax on that income, to end up with around $490 to spend on your extra mortgage repayment.
I don’t know about you, but I’d rather have that money in my bank account than the bank’s?
So, what can you do about it?
Consider your home loan to be like your car: it ticks along nicely most of the time, but every 12 months, it needs a tune up.
With your mortgage, a regular loan tune up could be as simple as calling your bank and asking them: “Am I paying the same rate as new customers, and can I get a discount on what I’m paying now?”
Or, it could be about looking around and seeing how competitive interest rates are between lenders, to see if it’s worthwhile switching?
The example I shared earlier talked about just a 0.07% difference in interest rates. But right now, mortgage markets are so competitive, you could get a better home loan deal that helps you save 0.5% in interest, or even more. This could mean literally thousands of dollars worth of savings! To discover the latest home loan offers and the options available to you for refinancing, contact a mortgage broker who can do all the leg work for you in finding you the best deal for your circumstances.
Louisa Sanghera - Director and Principal Award-Winning mortgage broker at Zippy Financial
Louisa created Zippy Financial after a 25-year career in banking, with the goal of using her expert financial knowledge, vision for exceptional customer service and passion for property to help her clients grow their wealth through smart property financing. Whether you are looking to buy your first home, re-finance or build your property investment portfolio, Louisa and her team of experienced brokers can help guide you through the challenging maze of finding & securing exactly the right loan for you.
M: 0414083522 or 1300 855 022
E: louisa@zippyfinancial.com.au
Connect with Louisa Sanghera on LinkedIn
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