Four Common FAQ’s on Interest Rates & Home Loans
For the average Australian homeowner, the purchase of a home is likely going to be the biggest cost and the biggest investment in their lifetime. There’s an incredible amount of information to absorb when it comes to embarking on a homeownership journey, and when it comes to interest rates, things can get even more confusing.
So, to break it down, our experts have taken a look at four of the most frequently-asked-questions when it comes to interest rates and home loans, to help make navigating the next step in your life that little bit easier.
How is interest calculated on a Home Loan?
Interest rates go up and down depending on factors including the cash rate set by the Reserve Bank of Australia (RBA) and the lender’s cost of funds.
There are many variables on how interest is calculated with a home loan, depending on whether it’s an owner-occupier home loan or an investment property.
These variables allow you to choose the different types of loans that will be most suitable to you, which is where the difference comes from. The payment amount, frequency, and type of loan you make on the home you’re living in may be different to how you could pay back an investment, particularly if you already own other property.
Investment properties do determine a higher interest rate. Top tiered lenders will also dictate higher interest rates because of their sophisticated technology and accessibility (as in store locations, customer service, bank accounts, etc).
How can you reduce the amount of interest you pay on a Mortgage?
Where possible, contributing additional money on a weekly basis to your mortgage is a great way to reduce the amount of interest you pay in the long run. But, we know it’s not for everyone.
If you have additional savings, you can also set up an offset account, where the interest is calculated on the residual balance of the loan at any given time. And if there’s ever an emergency, you can then access this money at any time.
One thing to factor in when taking out any loan is to make sure that you aren’t stretching yourselves too thin on your repayments when the interest rates are low, as you will likely feel the pinch if rates do rise again. Instead, making sure you can comfortably repay the loan where possible will give you more breathing room to make additional repayments during times of low interest rates, while cutting back and still paying the required amount if rates do rise.
What is a reasonable interest rate on a Loan?
The average interest rate on a home loan in Australia again varies depending on the type of loan, and the type of property.
Owner occupier home loans have an average interest rate somewhere in the 2% range.
Meantime, an investment loan should have an average interest rate somewhere in the low 3% range.
When was the last time you checked your Home Loan bank statement?
Don’t know how much interest you’re paying on your home right now? Start checking now! If your rate isn’t under 3% for an owner-occupier home loan, you could save thousands of dollars a year just by checking it and renegotiating your self a better rate. Which could escalate into paying off your biggest asset sooner.
But why risk time going down the path of speaking to your bank when you only get one rate, one policy, and one option? Which could mean you won’t get an approval at all?
At Jim’s Financial Services we have experienced mortgage brokers across the country that have access to over 60 lenders. They can do all the research to assist you in getting your approval at the best rates available.
There are so many features of benefits of how home loans can be structured to save you money and time, and you may even find that you have enough equity in your property to start thinking of buying an investment property, and a great starting plan for your retirement.
Need a health check on your Home Loan? Call one of our Finance Consultants today. It could save you thousands per year.
Contact us online here or call 131 546.