Given the way that house prices have gone recently, it will take many of us years to pay off our home loan (see graphic – ‘How many years of annual income will it cost you to buy a house?’). This could put some people off ever buying a place!
But, the good news is that today, the current low rate environment enables us to get ahead with payments and reduce the amount of time we have debt around our neck. For many this will allow us to get ahead before rates do eventually rise.
Rather than treating a rate cut as a sugar hit which borrowers could blow in the shops, many Australians are using the cuts to reduce their debt. The most obvious way of reducing debt is simply by telling your bank to keep your monthly repayments as they are – even when rates have come down. You will have gotten used to making these payments since August 2013 – so won’t feel any difference.
Or course you are getting ahead with the mortgage. But, nowadays you also have the benefit of redraw which means that, should you have a rainy day, then you can tap into the extra repayments. And, with the benefit of Internet banking, you can pretty much transfer the money there and then.
Offset accounts are redraw’s much more sophisticated counterpart. The more money you stick into the offset, the more it is offset against the interest that is being charged on your mortgage.
In many instances, offset accounts only come with the bank’s professional packages which often have an annual fee of around $395. But there are a few that will offer you a cheap offset for about $10 per month.
Professional packages, too are not to be dismissed and can really save you money if they are used properly. Apart from the offset account, professional packages also offer lower interest rates, fee-free credit cards and discounted insurance – potentially saving you thousands over the years.
And because they are packages, you can combine multiple loans and properties under the one roof which. Let’s face it, if you have ten properties and loans all in the one package, you will hardly notice the $395 annual fee.
One of the most satisfying aspects of being a mortgage broker is finding the best loans for a client. If you would like to find out more on how you can potentially save thousands on your home loan, please contact 1300 30 67 67 or send us an online enquiry form.
Graeme Salt – National Client Finance Manager, Chan & Naylor Finance Australia
Disclaimer: This article contains general information. Before you make any financial or investment decision you should seek professional advice to take into account your individual objectives, financial situation and individual needs.