Find out what you can do to make sure you are always paying the lowest rate on your loan.
Are You Paying More Than You Have to in Interest on a Current Loan?
You may have gotten a decent interest rate when you applied for your loan but that doesn’t mean you’re paying a competitive rate right now. Especially in the past few years, banks have been known to increase their standard variable rates despite the rock bottom RBA rates, which means your rates may have been on the rise without you even realising it.
At the same time, banks are always looking for new customers. To attract borrowers, they’ll offer discounted interest rates. You can look at the rates lenders are offering to see if yours is higher. Here’s the thing to keep in mind – banks don’t usually advertise their lowest rates. Rates may be even lower than those you see when you look at advertised interest, giving a new borrower a significantly cheaper loan.
Evaluating Your Interest Rate
If you’ve been paying down your loan on time for a couple of years, it’s always a good idea to evaluate your interest rate to see if you could get a better deal. Even a discount of 0.5% could save you tens of thousands of dollars over the term of your loan.
To get an idea for how much a small reduction in your interest rate can impact your overall cost, here’s an example. On a $400k loan with a 30-year term, you’d save $41,636 if you switched from a 4.30% interest rate to a 3.80% rate. You can look at our Loan Comparison Calculator to see how much you could save by refinancing to a loan with a better rate or by asking your lender to lower your rate.
Because the best rates aren’t always advertised, it’s not always easy to see how low you can go. Call (07) 3146 5732 or contact us online to talk to one of our loan experts – we can let you know what deals and low rates our lenders are currently offering.
Getting a Better Rate with a Lower LVR
Another factor that may help you to get a better rate is your Loan to Value Ratio (LVR). When you pay down your loan for a few years, you’re no longer as much of a risk to the bank. As you pay down your loan, you build up more equity in your home, particularly if house prices have been rising.
If you were to refinance, you may be able to refinance to a low LVR loan, which could make you eligible for a lower rate than you were offered when you first qualified for the loan. With more equity, it's possible you'll save a lot of money by switching loans if the interest rates are in your favour.
Just keep in mind, if you refinance but you don’t have enough equity to borrow less than 80% of the property value, you could end up having to pay LMI a second time.
Another option is to request a discount. If new borrowers are getting better rates and you’re now an even more qualified borrower because of your increase in equity, your lender may agree to a discount. The bank may only offer a small 0.20% discount or even less because they believe you won’t switch loans. Still, it may be worth asking your current lender before refinancing with another, just to see what they are willing to do for you.
Ways Your Interest Rate Could Be Higher Than You Think
You probably already know your interest rate could increase if you have a variable rate loan and your lender decides to raise rates. However, there are other, less obvious reasons why your rate could go up. The problem is – unless you stay on top of your interest rate, you may not realise you’re paying more.
- With a split rate loan, you’ll pay a variable rate on a portion of the loan and a fixed rate on the other part. When the fixed term ends, your fixed rate will revert to the bank’s standard variable rate. Many borrowers in this case assume they’ll pay the same low variable rate on both portions of the loan once the fixed rate changes, but this isn’t usually what happens. When your fixed rate reverts to the standard variable rate, you may end up paying a significantly higher variable rate for that portion of the loan, without even realising it. This is especially true if you qualified for a low variable rate on the variable portion.
- If you have a professional package loan, you likely have a discounted rate and aren’t paying ongoing loan fees. Instead, you are probably paying the annual professional package fee. If there isn’t enough money sitting in your account to pay the professional package fee when it’s charged, your fee and interest rate discounts are cancelled. The bank isn’t necessarily going to make this clear to you and you may not even know you are paying more in interest and fees.
How to Protect Yourself from Higher Rates
There are a few things you can do to keep your rate low.
- Stay on top of your mortgage repayments. If you’re being charged more in interest or fees, make sure you understand why.
- Request a discount if the bank is offering new clients a lower rate or if you believe you are being charged more than you had agreed to.
- If your lender isn’t responsive, you can consider refinancing with a different lender.
By switching to a lower rate, you could save a lot of money in interest in the long term, and you’ll have lower repayments!
Wondering if you could be paying a lower interest rate? With years of experience helping borrowers get a better deal on their mortgage, we’re confident we can help you save money on your home loan – and enjoy the peace of mind in knowing you aren't paying more than you should in interest.
Call (07) 3146 5732 to speak with one of our mortgage specialists or contact us online today.