12 Apr 5 tips that could trim years off your mortgage. Part 1
We’re all talking about rates coming down and enjoying all-time record lows and things like that, but what’s the best way to take advantage of these, and how can we do it? In today’s show we talk with Andrew Mirams, from Intuitive Finance, about 3 key points that everyone should be looking at and trying to implement into their strategy at the moment.
Kevin: It’s one thing to have some of the lowest interest rates we’ve had in decades, but just how do you go about taking advantage of that? Andrew Mirams from Intuitive Finance has been looking into this, and he joins us to maybe give us a couple of answers. Hi, Andrew.
Andrew: Good day, Kevin.
Kevin: How do you suggest we go about taking advantage of this low interest rate environment?
Andrew: I think this is one of the things that no one is really talking about. We’re all talking about rates coming down and enjoying all-time record lows and things like that, but I’ve been thinking – and I got recently questioned – about what’s the best way to take advantage of these, and how can we do it?
I have five key points that I like everyone should be looking at and trying to implement into their strategy at the moment.
Kevin: Okay, let’s fire.
Andrew: The first one is people get complacent when rates are coming down, so the first and the strongest tip I give is for everyone: I think you should be reviewing what you’ve currently have.
Whether it’s just a small home loan or you have a sizable property portfolio, it doesn’t really matter. Just because rates are coming down doesn’t mean you have the right deal. Right at the moment, banks are really competing actively, in fact, stronger than ever in terms of trying to get business and new clients, so I think there’s a really good opportunity for everyone to review their current facilities and what they have.
The other thing is in the good times that we’re experiencing at the minute in terms of our property markets, it might be just an opportunity to access more funds and set up a buffer, or look for that next or first investment property. The first point, I think, is everyone should be looking to undertake a review of their loans.
The second point that I thought is start to take advantage of these low rates, and what I mean by that is actually look – and you can get online calculators and all sorts of things – at your home loan or your bad debts or necessary debts. Bad debt we would say is credit card or personal loan; a necessary debt is what we term as actually having a home loan. The reality is you can’t buy a home without a home loan for most Australians.
Let’s look at starting to be a little bit more proactive with your repayments. Go back to a home loan calculator and factor in a rate at 6% and start paying the repayments at that rate. Six percent, if we only talk a year or two ago, wasn’t that dear, was it?
Kevin: No, not at all, mate.
Andrew: Now, all of a sudden, everyone’s experiencing an average rate of, let’s say, 4.75%. So if you just take an average $400,000 home loan at the current rate of 4.75%, you’re looking at paying around about $2100 a month or $480 a week. If you simply put it in at 6%, you’ll pay around about $2400 (only about $300 a month more) or $550 a week (only $70 a week more). That doesn’t sound like a whole lot, but what that can do is actually reduce your home loan by more than seven years, and it’ll save you around about $93,000 in interest.
Kevin: That’s amazing.
Andrew: Now, if you say to most people, “Can you save up $93,000?” they would laugh at you, wouldn’t they?
Andrew: I think that’s a really simple tip. Now, I’ve got clients looking at doing it at 7%, so they’re basically gearing up the buffer. They know rates aren’t going to stay this low forever. But let’s start building in a buffer and start trying to get ahead by just simply increasing your repayments as if you’re paying a higher interest rate.
Kevin: Sounds good, mate.
Andrew: The next tip is for everyone who doesn’t have an offset account. You really should have an offset account. All the banks basically offer it inside of their packages. I think it’s still a really under-utilized product in the Australian market.
Having an offset account means instead of your normal day-to-day transactional savings account, you can actually have one that whatever is in there – be it your week-to-week salary and other savings – will actually help you reduce your home loan interest that you pay.
Let’s just say – in rough terms – you have a $210,000 loan, and you have $10,000 in your offset; you only pay interest on the differential, being the $200,000. Now, if you can start to build that up while you’ve also got low rates and couple it with making extra repayments, exponentially again, you can repay that home loan a hell of a lot quicker.
Kevin: Makes a lot of sense. We’ve got two more tips to go. We’re going to come back later in the show with Andrew Mirams, so stick around, and we’ll give you the final two tips.
Andrew Mirams from Intuitive Finance with tips on taking advantage of the low interest rates. We’ll catch you a little bit later in the show, Andrew. Thanks, mate.
Andrew: Thanks, Kevin.