Jack Han reports on how to beat the banks and curb your home loan repayments.
February 24, 2010
The Commonwealth Bank of Australia (CBA) is the latest major bank to see record profits for the first half of the 2009-10 financial year. This has sparked concerns that interest rates will remain inflated above expected levels, placing thousands more home loan borrowers in the red.
Ralph Norris, CBA’s Chief Executive Officer, revealed earlier this month that CBA has gained profits of $2.94 billion for the first half of their financial year. This figure is 54 percent higher than what they achieved this time last year.
When questioned by the Courier Mail about how this impressive result will affect its interest rate movements, Mr Norris responded that, “it’s difficult to talk about out of cycle interest rate increases at this point … It’s really a day by day situation.”
While CBA profits are sky rocketing, thousands of home owners are struggling under rising interest rates.
In the December 2009 quarter, home loan borrowers who were more than 30 days in arrears increased across the board, according to analysis performed by global agency Fitch Ratings. In the same quarter, low doc home loan borrowers saw their missed repayments increase by 50 percent, as interest rates increased consecutively in October, November and December.
The December record credit spending of $22.02 billion by Australians is also expected to contribute to the higher levels of mortgage delinquencies that we could see in 2010.
However, at the current cash rate of 3.75 percent, interest rates are as low as they have been in decades. Compared to two years ago, the cash rate is almost half as high as the 7 percent rate in February 2008.
Borrowers struggling to repay their home loan debt should definitely consider how they plan to make repayments in the long-term, when interest rates are likely to rise.
One way of keeping your head above water is by comparing home loans for the cheapest interest rates on the market. Most borrowers can save between 1-2 percent when they shop around for better deals, which could end up saving them hundreds of dollars every month.
It may seem unfair that banks get all the glory while you struggle to make ends meet. Keep switching lenders until you know that you have the best deal in the market, and make sure you reclaim the money balance before rates hit your wallet.