by Lisa Montgomery, Head of Consumer Advocacy 26/06/2007

In the current climate of rising household debt and the likelihood of further rate increases, borrowers need to think about ‘interest’.  Not just the interest on the loan, but working on ways to make their mortgage work in the best interests of their own financial wellbeing.

No one knows when and by how much interest rates will rise, as this is the role of Australia’s Reserve Bank. We have been fortunate that despite a strong economy, low unemployment and high productivity – interest rates have remained steady.

However, it‘s unrealistic to assume interest rates will remain ‘on hold’ indefinitely and now is the time for borrowers to give their financial affairs and home loan a quick health check

Irrespective of whether you are a new home buyer or an established homeowner, there are a number of ways to get ahead with your mortgage,  and perhaps reduce the impact of any future rate interest rate rises.

• Make your first repayment as soon as possible - don’t wait until your first mortgage repayment is due, opt instead to make the first loan repayment as close to settlement date as possible.  By doing this you will be saving on the interest charged on the balance of your home loan account.
• Increase the frequency of your repayments - selecting fortnightly repayments over monthly repayments means you automatically make an extra repayment on your mortgage each year.
• Understand the mortgage industry - regularly reading of newspapers, mortgage magazines and the correspondence you receive from your lender, will keep you up to date with industry and government changes which may affect you and your mortgage, and adjustments can be made.
• Reduce your fees - keeping bank fees to a minimum can save you substantial money over the term of your home loan.  So, if you know that you are likely to make a lot of transactions regularly, select an account which will accommodate by keeping charges to a minimum.
• extra or lump sum repayments.  Making additional repayments will help you minimise your exposure to future interest rate increases or changes in property values.
• Budget wisely - when you consider that every extra repayment is helping you pay your home loan off sooner, it makes sense to adjust your spending occasionally to accommodate that extra repayment.  You don’t have to give up all of life’s luxuries but modifying your spending during the year can help you become mortgage free sooner.
• Ask your lender about rate discounts and special offers – Don’t be afraid to ask your lender about any new rates, or special offers. Be mindful that switching loans can be a costly exercise – however many lenders offer discounted rates to lenders borrowing amounts over $250,000, and lower honeymoon or introductory rates for the first 12 months of a loan. As with any home loan – make sure you do your homework first and read the fine print.

Your home loan is a long-term investment and making adjustments to your budget and payment options can be the best way to reduce this commitment sooner.

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