December 9, 2010
As a result of the recent interest rate increases many households are struggling to meet their home loan repayments, but is it possible to ease the burden and still get ahead?
The difference a rate rise makes
Unfortunately what all mortgage holders dread became a reality in November when a large portion of financial institutions, including the major four banks, increased their interest rates past the cash rate‘s 25 basis-point rise.
For instance, the benchmark basic variable rate (average of the major four banks – ANZ, Commonwealth Bank, NAB and Westpac) was 7.1 percent (at the time of writing) which is an increase of 32 basis points from the previous month at 6.78 percent. For borrowers with a loan valued at $300,000, the average loan size has gone up by $62 per month.
How to save for the higher repayments
In order to be able to survive the higher costs, there is a way that allows you to save and still pay off your mortgage. Here are some tips that show you how.
Compare your loan. There are a range of lenders offering home loans for all budgets. When rates rise and competition within the mortgage market increases, there is bound to be a loan with a lower rate than what you are currently paying. Compare home loans online at RateCity to see what is currently being advertised.
Make the switch. If you find there is a lower rate, consider making the switch and start saving. For instance, one of the lowest home loans on RateCity is 6.72 percent by Collins Home Loans (as December 9, 2010), which is 38 basis points lower than the current benchmark basic variable of 7.1 percent. Just by refinancing your loan with another lender, you could save yourself $110 per month or nearly $33,000 on a $300,000 loan over 25 years (excluding associated break and establishment costs).
Revise budget. In order to meet your higher repayments it may be useful to revise your budget. Factor in how much extra you need to pay and then work out where you can cut back on expenses to make up the difference. While this may look simple on paper, the important part is to put your plan into action and stick to it. You may need to make a few changes to your lifestyle but the end result will be well worth it and you will be one step closer to being a home owner.