Yahoo Finance Home loan borrowers could save $61,904 by doing this one thing
It’s more important than ever to make sure you are getting a competitive deal on your home loan.
Mortgage holders are being slugged with higher home loan repayments, but there’s one way to lower your costs that many may be “unaware” of.
The average borrower is paying an extra $1,104 a month on a $500,000 mortgage and an extra $2,207 a month on a $1 million mortgage since the Reserve Bank started hiking interest rates in May 2022.
Comparison site Mozo is urging mortgage holders to check their loan-to-value ratio (LVR) and see whether this qualifies them to get a better rate.
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“The LVR is essentially how much you owe in comparison to how much your property is worth,” Mozo money expert Rachel Wastell said.
“That borrowed amount influences interest rates, as the lower the LVR, the less risky you become in the eyes of the banks.”
Mozo found some lenders offered much lower interest rates for lower LVR tiers, based on LVR-specific variable rates. For example, the average 90 per cent LVR rate is currently 6.83 per cent, while the average 60 per cent LVR rate is currently 6.29 per cent.
That’s a difference of 0.54 per cent, which Mozo found equated to a staggering $61,904 difference in interest for a $610,000 loan paid over a 25-year term.
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“Property owners who have been paying off their home loans for four or five years are likely to find their LVR has reduced, however, most banks do not automatically adjust the rate as borrowers pay off their loan,” Wastell said.
“The responsibility often falls on the borrower to seek out better terms when the LVR drops to a lower tier, which many homeowners are probably unaware of.”
High property prices could also work in your favour, with values rising 8.1 per cent in 2023 across the country.
“The surge in property prices across major cities and the ongoing repayment of loans at low interest rates could mean many borrowers have a lower LVR than they initially started with,” Wastell said.
Even if your LVR hasn’t dropped, it’s worth shopping around to see if you are eligible for a lower rate.
“When as little as half a percentage point difference in home loan rates can equate to tens of thousands of dollars more in interest you’re paying over the course of the loan, paying the ‘loyalty tax’ on a home loan can be very expensive,” Wastell said.
If you are unable to refinance, Wastell suggested trying to negotiate even a small rate drop with your current lender.
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