Home loans are one of the biggest burdens on family and property investor budgets. That’s why, Australians are keeping a close eye on the Reserve Bank’s decisions.
In a recent interview, RBA’s Governor Philip Lowe said it is “reasonable” to expect the interest rate to reach 2.5 per cent by the end of the year (the cash rate is 1.35 per cent at the time of writing this article).
As ultra-low fixed rate mortgages end and rates rise, 40 per cent of Australians could be in financial trouble.
Truth is, you can protect your household budget or your investment property against the impact of higher interest rates.
Make sure you’re getting the best deal on your home loan with this simple health check.
Home Loan Health Check
How to find out if your current home loan is not in great shape? Just look at the warning signs. Can you spot one or more of the “symptoms” in the list below? If the answer is yes, then it’s time to switch to a lender that will take better care of your mortgage.
1. Your rate is no longer competitive, or your fixed rate is ending
When was the last time you checked your rate? Maybe your loan was one of the best in the market at the time, but chances are there are new products with more competitive rates available right now.
Or you might be one of those Australians who during the pandemic have locked in low fixed rates that will expire next year. CBA alone is forecasting a staggering $53 billion of fixed rate mortgages rolling over into variable rates in the second half of 2023.
Either way, securing and staying at a good rate could save you thousands, if not tens of thousands of dollars, over the life of your loan.
But a low rate it’s not everything – there are many other features that make a home loan great (keep reading to discover what they are).
2. You’re paying a loyalty tax and you don’t even know it
Do you think your loyalty to your lender will be rewarded? Think again. Research from the ACCC found that existing borrowers pay higher interest rates compared to those offered to new customers.
This is because lenders use flashy low-rates to attract new customers, but don’t proactively offer them to their existing customers.
Trapped in a set-and-forget approach that prevents them from shopping around for a better rate, existing customers end up paying considerably more. This is what is known in the industry as “loyalty tax”.
If you’ve been with your lender for over two years, there’s a good chance you are paying it. This means you could be charged an extra $2,016 in interest per year compared to a new borrower*.
But don’t worry, today it’s easy to switch to a lender that always offers the same rates to both new and existing customers – more on this below.
3. You’re paying unnecessary fees
You might not be aware of it, but most lenders charge their customers:
- Application fees
- Valuation fees
- Transaction fees
- Settlement fees
- Ongoing account fees (monthly or annual)
- Offset sub-account fees
- Debit card fees in Australia or overseas
- Early pay out fees
- Exit or discharge fees
- Higher rates for home loans with an offset sub-account.
These charges can add up to $11,850 over the life of your loan.
That’s a lot of fees, isn’t it? We agree. In fact, we believe you shouldn’t pay them.
4. You don’t have ways to pay down your loan faster
Do you know that by using an offset sub-account you can pay your loan down faster?
Keeping your savings and having your salary deposited into your offset account or offset sub-account reduces the interest on your loan without you having to do anything.
Check if your current lender can offer you a free offset or offset sub-account.
Making extra repayments is another way to pay your loan down faster. But ensure your lender doesn’t charge early pay out fees. Unfortunately, many banks penalise you with heavy charges when you end your mortgage earlier than the agreed term.
5. Your offset sub-account has limited payment options
When it comes to home loans, many customers trade features off for ultra-low rates, which often leaves them with limited ways to use their money.
Only later do they realise how important it is to have all their payment options covered.
A great home loan should allow you to pay and transfer instantly from your offset account, make purchases with debit cards, Apple Pay and Google Pay, and not charge any lender fees on domestic or international transactions.
6. You waste time transferring money across different banks
Do you spend too much time moving money between your accounts?
This could happen when you try to make the most of your offset sub-account but use a different bank for your everyday expenses (see sign 5).
The solution is a home loan that offers a low rate and allows you to pay your regular household bills or expenses right from your offset sub-account.
7. You don’t have an easy way to check your home loan
These days, a good mobile app should allow you to easily check the rate you’re on, the available funds in your offset sub-account, the interest you save, and how these funds are reducing your loan term.
If your current lender doesn’t offer that, you should look elsewhere.
Ready to switch? Here is what to look out for
If you’ve come this far, it means you deserve a better home loan. Great, but before making the switch, there are a few key things you should watch out for:
- Hidden fees
To spot hidden fees, make sure you look at the comparison rate (not just the headline rate) which takes into account the cost of all up-front and ongoing fees.
- Pricing gimmicks
Avoid pricing gimmicks like cashbacks or honeymoon rates. Banks always find a way to recoup that money from you, often through fees and charges you’ll incur along the way.
- Slow, tedious approval process
Stay away from lenders that ask for endless paperwork, such as payslips and bank statements, and require you to calculate your expenses manually. It can be a world of pain.
Well done! Now you’re ready to shop around for a lender that treats you right.
Be smart about it. Put Nano on your shortlist.
Nano has no pricing gimmicks, no ongoing fees, and most importantly, offers one fair and transparent rate to new and old customers alike.
Using Nano’s unique data capability, we assess and approve loans in minutes, not weeks, so you avoid the settlement stress.
And it’s not just about transparency and savings. With Nano, you also get benefits like a free offset sub-account to help you pay down your loan faster, a Nano Visa Debit Card^ to make payments and a handy app to manage everything in just a few taps.
*Assuming a 30 year loan term. Source: ACCC, November 2020, Home Loan Price Inquiry.
^The Nano Card is issued by Hay Limited ABN 34 629 037 403 (Australian Financial Services Licence 515459). See terms and conditions.