When you run a chain of wealth management offices like Yellow Brick Road, you get a feel for the economy from what people are asking. Right now, Australians want to know how to pay less on their mortgage as they brace for more interest rate rises, a carbon tax and another round of electricity price increases.
So what can you do? My advice is not to spend your time worrying when you can start taking action!
Do your homework and figure out exactly how much your home loan is costing both in terms of true interest rate and monthly amount. Use the Internet comparison sites to see what else is out there. If you’re in the top quartile of mortgage rates, look at the lowest quartile: have you heard of them? Do you know anyone else who borrows with them?
Once you’re satisfied with the price and the reputation of alternative lenders, have a closer look at the mortgage type. There are a spread of variable rate mortgages from the ‘basic’ to the fully optioned. Of course, the ones with all the options are more expensive. But a standard variable rate loan with all the options can save you money, perhaps a lot more than you save by going with the cheapest rate. For instance, a loan with all the options will allow you to pay weekly and fortnightly and to put lump sums onto the loan as you see fit and without penalty – this suits people getting tax refunds, performance bonuses and making dividends to themselves from their business.
The basic, cheap loans won’t let you do it, or they’ll penalise you for it. The cheap loans don’t let you ‘split’ a mortgage between the certainty of a fixed rate and the market-best price of a variable rate loan. And it’s split loans that are so popular when households are already stretched and are worried about the future. If you like all your salary to go into the mortgage and then redraw it out, you won’t be able to do the offset-redraw on the cheap mortgages.
In other words, be careful of signing a loan because it looks ‘cheap’ – real savings are usually to be had in the flexibility of repayment frequency and size, not in the interest rate. Which brings me to the main point: if you’re really concerned about your mortgage and the economy, seek expert advice. If there’s one thing that saves you real money in the medium term, it’s talking to a broker or financial planner who knows what they’re talking about. Sometimes having options makes better financial sense than simply going cheap.
Mark Bouris is the Executive Chairman of Yellow Brick Road, a financial services company offering home loans, financial planning, accounting & tax and insurance. Email Mark on mark.neos@ybr.com.au with any queries you may have or check www.ybr.com.au for your nearest branch.