Save over $34,000 on your home loan

Save over $34,000 on your home loan

RateCity shows you why you shouldn’t give up on your dream of owning your own home while the housing market plummets.

June 23, 2010

Is it your dream to own your own home? Well, don’t despair, the day where you sign on the dotted line and the keys are handed over to you may still be in your sights.

The Australian Bureau of Statistics (ABS) recently released figures showing the number of home loans for new and established owner-occupied properties written in April is the lowest level it has been in over nine years. Since April 2009, the total value of mortgages on owner-occupied properties has dropped by $3.27 billion to $13.71 billion.
The report also showed investment-housing loans increased in value since April 2009, however the total value of housing commitments overall remains lower than the previous two years.

“[Last year] saw a lot of incentives for first home buyers to enter the market –  the lowest interest rates in a generation and extra federal and state government grants most importantly. These things had the effect of bringing forward purchases that otherwise would have happened in 2010, and so we’re seeing the after-effects now,” RateCity’s CEO Damian Smith said.

“There is also no doubt, however, that the rise in interest rates over the last nine months has scared off many home buyers, with repayments for a $300,000 mortgage having increased by almost $300 per month since before rates began to rise in September 2009.

“But just like the old adage of selling straw hats in winter, these trends also offer an opportunity for some prospective buyers.

“If you have saved your deposit, have researched the home loan market thoroughly, worked out your budget and have left yourself a 2 percent buffer in case rates rise in the future, then you may be able to take advantage of the slowdown in the housing market before the real estate season picks up again in spring.”

Despite interest rates remaining static, home buyers will still need to be careful when entering the property market.

“As well as the 2 percent buffer, a good guide is to make sure your repayments are less than 30 percent of your income,” Smith said, “which is about $1000 per month for a $60,000 salary and a loan size of about $150,000, otherwise you will be under mortgage stress.”

He said selecting the right home loan will make a massive difference to your repayments and you could save thousands of dollars in interest.

For instance, RateCity’s top standard variable rate home loan (current as at June 18, 2010) is 6.39 percent with State Custodians, which is 64 basis points below the current average standard variable rate of 7.03 percent. This difference on a home loan of $300,000 you could save $115 per month, $1380 per year or over $34,500 over the life of a 25-year loan.

 

Related Links

Did you find this helpful? Why not share this article?

Advertisement

RateCity

Money Health Newsletter

Subscribe for news, tips and expert opinions to help you make smarter financial decisions

By signing up, you agree to the ratecity.com.au Privacy & Cookies Policy and Terms of Use, Disclaimer & Privacy Policy

Advertisement

Learn more about home loans

How do I refinance my home loan?

Refinancing your home loan can involve a bit of paperwork but if you are moving on to a lower rate, it can save you thousands of dollars in the long-run. The first step is finding another loan on the market that you think will save you money over time or offer features that your current loan does not have. Once you have selected a couple of loans you are interested in, compare them with your current loan to see if you will save money in the long term on interest rates and fees. Remember to factor in any break fees and set up fees when assessing the cost of switching.

Once you have decided on a new loan it is simply a matter of contacting your existing and future lender to get the new loan set up. Beware that some lenders will revert your loan back to a 25 or 30 year term when you refinance which may mean initial lower repayments but may cost you more in the long run.

Monthly Repayment

Your current monthly home loan repayment. To accurately calculate how much you could save, an accurate payment figure is required. If you are not certain, check your bank statement.

What is breach of contract?

A failure to follow all or part of a contract or breaking the conditions of a contract without any legal excuse. A breach of contract can be material, minor, actual or anticipatory, depending on the severity of the breaches and their material impact.

What is appreciation or depreciation of property?

The increase or decrease in the value of a property due to factors including inflation, demand and political stability.

What is a valuation and valuation fee?

A valuation is an assessment of what your home is worth, calculated by a professional valuer. A valuation report is typically required whenever a property is bought, sold or refinanced. The valuation fee is paid to cover the cost of preparing a valuation report.

What is appraised value?

An estimation of a property’s value before beginning the mortgage approval process. An appraiser (or valuer) is an expert who estimates the value of a property. The lender generally selects the appraiser or valuer before sanctioning the loan.

Do other comparison sites offer the same service?

Real Time RatingsTM is the only online system that ranks the home loan market based on your personal borrowing preferences. Until now, home loans have been rated based on outdated data. Our system is unique because it reacts to changes as soon as we update our database.

Mortgage Balance

The amount you currently owe your mortgage lender. If you are not sure, enter your best estimate.

Mortgage Calculator, Property Value

An estimate of how much your desired property is worth. 

What is the flexibility score?

Today’s home loans often try to lure borrowers with a range of flexible features, including offset accounts, redraw facilities, repayment frequency options, repayment holidays, split loan options and portability. Real Time Ratings™ weights each of these features based on popularity and gives loans a ‘flexibility score’ based on how much they cater to borrowers’ needs over time. The aim is to give a higher score to loans which give borrowers more features and options.

How common are low-deposit home loans?

Low-deposit home loans aren’t as common as they once were, because they’re regarded as relatively risky and the banking regulator (APRA) is trying to reduce risk from the mortgage market.

However, if you do your research, you’ll find there is still a fairly wide selection of banks, credit unions and non-bank lenders that offers low-deposit home loans.

Why should you trust Real Time Ratings?

Real Time Ratings™ was conceived by a team of data experts who have been analysing trends and behaviour in the home loan market for more than a decade. It was designed purely to meet the evolving needs of home loan customers who wish to merge low cost with flexible features quickly. We believe it fills a glaring gap in the market by frequently re-rating loan products based on the changes lenders make daily.

Real Time Ratings™ is a new idea and will change over time to match the frequently-evolving demands of the market. Some things won’t change though – it will always rate all relevent products in our database and will not be influenced by advertising.

If you have any feedback about Real Time Ratings™, please get in touch.

Why is it important to get the most up-to-date information?

The mortgage market changes constantly. Every week, new products get launched and existing products get tweaked. Yet many ratings and awards systems rank products annually or biannually.

We update our product data as soon as possible when lenders make changes, so if a bank hikes its interest rates or changes its product, the system will quickly re-evaluate it.

Nobody wants to read a weather forecast that is six months old, and the same is true for home loan comparisons.

How personalised is my rating?

Real Time Ratings produces instant scores for loan products and updates them based what you tell us about what you’re looking for in a loan. In that sense, we believe the ratings are as close as you get to personalised; the more you tell us, the more we customise to ratings to your needs. Some borrowers value flexibility, while others want the lowest cost loan. Your preferences will be reflected in the rating. 

We also take a shorter term, more realistic view of how long borrowers hold onto their loan, which gives you a better idea about the true borrowing costs. We take your loan details and calculate how much each of the relevent loans would cost you on average each month over the next five years. We assess the overall flexibility of each loan and give you an easy indication of which ones are likely to adjust to your needs over time.