February 9, 2011
If you thought your home loan repayments stung you harder last year than previously, then you were right. Research by RateCity revealed Australians paid a whopping $3.86 billion in higher interest charges in 2010 for home loans, credit cards, car loans and savings.
Most of those extra interest charges – a total of $3.47 billion – was for higher home loan costs. This meant if you had the average mortgage size of $300,000, you were paying an extra $1615 in interest on your loan over the year. This is no small change when many people were struggling to make ends meet.
While it can be easy to target banks as greedy, money hungry goblins, not all the extra $3.86 billion went straight into the banks’ coffers.
“The cost of funding loans has increased, including the Reserve Bank of Australia lifting the official cash rate by 100 basis points to 4.75 percent [since December 2009],” says Michelle Hutchison, consumer advocate at RateCity.
What can you do?
Don’t despair – there are things you can do to make sure you’re not paying too much extra interest on your home loan this year.
The most important thing is to reassess your home loan and shop around. Although it can be time-consuming to visit lenders or trawl the internet, websites such as RateCity.com.au make that job easy and allow you to compare what different mortgage lenders are offering.
Depending on your circumstances, such as the length left on your loan and your current interest rate, determine what’s important for you: flexibility, low interest, a fixed rate which gives you predictability or a longer loan period.
Comparing products also gives you some bargaining power with your current lender. If they’re not willing to negotiate, take your business elsewhere.
When you do find a home loan which works better for you, read the fine print. For example, how much will it cost you to transfer your loan and are there any start-up costs?
“Most of the time, even if you have to outlay some money to switch you will still be better off,” Hutchison says.
Try not to be too short-sighted and beware of getting lured in by initial low interest rates that jump after a promotional period.
To make sure you don’t get caught in a web of paying extra interest in 2011. Take the time to compare to make sure you’re getting the best deal on the market.
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