$456 a month: The loan that will slash your mortgage repayment

You can slash your mortgage repayment by 150 basis points with this loan. (Source: Supplied) (Samantha Menzies)

In yet another blow for mortgage holders, the interest rate has finally surpassed 4 per cent. But while your mortgage repayment is marching up, you may still be able to step down your interest rate by 150 percentage points.

Here are the best-quality, low-cost home loans available today.

Money-saving quality loan products

I have deliberately looked at the variable rates on the day of the hike last week on June 6 because that new cash rate hike will filter through at different times.

The only sure thing is that it will filter through, maybe even a little bit more in some cases as we have seen extreme discounting come to an end. Right now, money is too expensive for institutions themselves to borrow for them to then offer out in so-called ‘loss-leading’ – aka, profit-bleeding – products.

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So this is the apples-with-apples, interest-with-interest check. And what a reality check.

There were still home loans in the market last week charging 5.29 per cent, with a comparison rate - which takes into account the upfront and ongoing fees and charges - only a smidge above that. You can see in the table below that Easy Street and Police Bank equally top the table with that 5.29 per cent. Just behind them are G&C Mutual Bank (5.34 per cent), Health Professionals Bank and Police Credit Union (5.39 per cent), and Bendigo Bank (5.47 per cent).

Don’t forget that you can expect each of these to go up by 25 basis points, or one rate rise, as soon as. At least.

Rates current as at June 8 2023, for ADI-backed owner-occupier loans of $500,000 and LVR of 80 per cent. (Source: mozo.com.au)

But don’t miss that these are not bargain-basement products. No column of mine will ever carry ‘cheap-and-cheerful’ products because that is often synonymous with ‘poor quality’. The quality products carry genuine offset accounts, which is free interest savings.

The products in this table are the best of those backed by an authorised deposit taking institution (ADI). This means that they can house your savings in a parallel, quarantined, safe offset account alongside your mortgage itself. Any online lender that cannot prove they are an ADI simply, unsafely mixes your money up with your mortgage so if you get into trouble, they can just take your savings off your loan balance.

How do the best compare with the rest?

The huge majority of Australians mortgages are still held with the big four banks, which levy an average interest rate of 6.78 per cent. That is an average for a loan with a real offset account of $500,000 and a loan-to-value ratio of 80 per cent.

Whereas, the average for the same loan across all the lenders tracked by Mozo, our data source, is 6.56 per cent. In case you didn’t note the difference, borrowers with a big bank who haven’t negotiated a discount are paying about 150 percentage points over the odds - 6.78 per cent versus that best, quality loan of 5.29 per cent. That’s money you’re just donating to an institution.

How much? On a $500,000 home loan, it’s $456 a month. I have built a free app, My Mortgage Freedom Date (for Apple and Android, so you can calculate your potential individual savings. But my app automatically also shows you something hugely more powerful: how soon you could be debt-free and so have no repayments… without repaying a cent more than you are used to.

If you can manage without the potential average $456 saving, and you keep your repayments at their original, higher level, a 5.29 per cent interest rate will get you mortgage-clear six years early… and almost $243,000 cheaper. At which point the stress of what the Reserve Bank does and interest rates can no longer affect you.

Nicole Pedersen-McKinnon is the author of How to Get Mortgage-Free Like Me, available at www.nicolessmartmoney.com. Follow Nicole on Facebook, Twitter and Instagram.

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