Every time the Reserve Bank of Australia has raised interest rates over the past several months, Jessica’s bank has passed on the hike.
She adjusted her budget each month and tried to reduce her spending so she could continue to save money.
“I wanted to keep a savings buffer, but that buffer was getting smaller each month with every interest rate rise,” she told NCA NewsWire.
Eventually, Jessica realised she had to do something else.
After a friend mentioned their interest rate at a different bank was lower, Jessica called her lender and asked for a better deal.
“It was as simple as that – I spoke to someone on the phone and they took 0.5 per cent off my interest rate. I was so happy,” she said.
Finspo co-founder and chief executive Angus Gilfillan told NCA NewsWire simply requesting a better deal from your bank could be a quick and easy option to improve on your current rate.
“However, you may be missing out on more competitive options in the market if you stop there,” he said.
“You could also go down the do-it-yourself path to find the best deal, but comparing all the cashback offers, rates, switching costs, features and benefits of the thousands of loan options out there can be pretty tricky.
“So one of the best ways to compare apples with apples is by speaking with a mortgage broker.”
Even if your bank does offer a better deal, Mr Gilfillan said it could still be worth refinancing to maximise your savings.
“A lot of people put refinancing in the ‘too hard’ basket, given how stressful it was getting their home loan to start with,” he said.
“But without the emotional rollercoaster of purchasing a property, the process of getting a new home loan, that is refinancing, can be much less overwhelming and well worth it.
“In fact, avoiding the mortgage loyalty tax by refinancing regularly can have a huge impact on your savings.”
For a $500,000 mortgage, Mr Gilfillan said the extra interest savings equated to $91,000 over a 30-year home loan.
Mr Gilfillan also recommended people with an offset account make the most of it.
“Ensure you are using your offset account as much as possible, as the benefit can be higher than having balances in either transaction account or savings account interest rates,” he said.
He suggested people make a lump-sum payment if possible.
“Every dollar counts towards reducing your loan principal, which in turn drastically reduces the interest you’ll pay over the life of your home loan – especially as rates rise,” Mr Gilfillan said.
“Just check with your lender whether a fee applies for making extra repayments.”
Changing up your repayments could also help, he added.
“By simply switching from monthly to fortnightly payments, you will be contributing the equivalent of an extra monthly repayment per year, which may not be overly noticeable to you, but can make a huge difference to the interest that you pay over the life of the loan,” he said.
The RBA this month increased the cash rate target by 25 basis points to 2.85 per cent.
More increases are expected in the coming months as the nation battles high inflation.
Over the year to September, the CPI inflation rate was 7.3 per cent – the highest in more than three decades.
Inflation is forecast to peak at about eight per cent later this year.
“The board expects to increase interest rates further over the period ahead,” RBA governor Philip Lowe said this week.
“It is closely monitoring the global economy, household spending and wage and price-setting behaviour.
“The size and timing of future interest rate increases will continue to be determined by the incoming data and the board’s assessment of the outlook for inflation and the labour market.
“The board remains resolute in its determination to return inflation to target and will do what is necessary to achieve that.”
BASIC VARIABLE INTEREST RATES OFFERED BY THE BIG FOUR BANKS:
- CBA — 4.44 per cent;
- NAB — 4.49 per cent;
- ANZ — 4.44 per cent; and
- Westpac — 4.24 per cent.
* Each bank has various terms within their respective packages. Smaller lenders also offer comparable rates.