Australia’s first home buyers are being advised to shop around after the latest Reserve Bank cut shifted interest rates at their lowest levels since April 2009.
Coupled with relatively stable house prices and escalating property rents, the RBA’s Christmas bonus has helped create improved borrowing conditions for first home buyers.
But while the recent rate cuts and improved housing affordability are giving first home buyers a financial leg up, Neil Manuel, general manager of online home loan lender, eMoney, says those already paying off a mortgage can trim repayments by shopping around for a better deal.
“First home buyers may not be aware of just how many competitive, low-rate home loan products are out there at the moment,” said Manuel.
“A starting point is to compare how your current mortgage compares to the broader home loan market. Doing your homework can potentially save you thousands of dollars over the life of the loan.”
To illustrate this point, variable mortgage interest rates can range from about 5 to 7 per cent, according to comparison website RateCity. “This is a comparison savings difference of $380 per month on a $300,000 home loan,” said Michelle Hutchison, spokesperson for RateCity.
While saving over $300 a month may seem like a substantial sum, it is dwarfed by the possible savings in interest over a 30 year loan term.
For example, on a $300,000 mortgage at 7 per cent, the average first home buyer will incur over $418,000 in interest. On the flipside, the same mortgage at just 5.13 per cent will incur $288,000 in interest.
“That’s a major cash saving of over $130,000 over the life of the loan,” said Hutchison.
“If your mortgage is consistently charging above-average interest rates, now could be the right time to take your business elsewhere.”
In addition, Hutchison advised first home buyers, to compare the ‘comparison rate’ of the loan instead of the ‘advertised rate’.
“The comparison rate incorporates both the annual interest rate as well as the cost of upfront and some ongoing fees, making it a far better guide to use when comparing home loans,” she advised.
Moreover, Hutchison advised borrowers to first try and negotiate a lower rate from their current lender.