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How to work the mortgage rate war to save $97,503

·4-min read
Nicole Pedersen-McKinnon reveals the steps you need to take to save. (Images: Getty).
Nicole Pedersen-McKinnon reveals the steps you need to take to save. (Images: Getty).

Lenders are now fighting harder than ever to finance your home. The COVID property-buying freeze, followed swiftly by the current buying spree, has pushed even the average Big 4 home loan rate down to a new low of 3.2 per cent, says data house Mozo.

That’s the discounted package rate, the way that the banks generally price products that come with an offset account.

And that’s what you want because an offset account is a hugely powerful debt reduction tool, allowing you to use your every excess dollar both for its intended purpose and to fell your loan interest.

But, today, you can secure the offset advantage for far less than 3.2 per cent.

Today’s cheapest, quality home loans

It used to be that you could only get a genuine offset account from a bank or bigger lender. Now you can also snare them from smaller, online outfits… that white label the products of the bigger guys at far cheaper prices.

One of these has just set the record for the lowest ever variable rate in Australia.

Tic:Toc, an online lender that offers products backed by a bigger bank, last week slashed its variable rate by 0.15 percentage points to 1.89 per cent – or a 2 per cent comparison rate.

And this week nearest-competitor Well Home Loans, also backed by a larger outfit, cut 18 percentage points to 1.99 per cent – or 2.02 per cent comparison.

Both products come with an optional offset account for $10 a month, which is a good deal when you consider that most large lenders charge some $400 a year for the home loan packages that carry these accounts (they usually include a credit card too… one with a high interest rate!).

If these products aren’t suitable, there are banks and credit unions that are competitive after that.

Bendigo Bank’s Express Home Loan has a 2.19 per cent variable rate (2.36 per cent comparison), Bank of Sydney’s no-annual-fee loan costs 2.29 per cent (2.31 per cent), as does G&C Mutual Bank’s Momentum Home Loan, for refinance only (2.3 per cent comparison rate).

All loans require a 20 per cent deposit and are based on you paying off the principal and interest, rather than the interest only.

For your own home though, this is just smart as you chip away at your debt… and will sooner or later own your home outright.

But still not hitting pause on Netflix and jumping on one of those lender’s sites?

Then let me put money on it…

Just how much can you save?

If you refinance a fairly typical $400,000, 25-year loan from the average Big 4 discounted rate of 3.2 per cent to Tic:Toc’s market leading rate of 1.89 per cent, your required monthly repayments plummet by $265 from $1939 to $1674.

What’s more, your total interest bill over the life of the loan falls by nearly $80,000, from $181,615 to $102,224.

But this ultimate saving gets far bigger if you apply what I call the mortgage masterstroke: ‘up stumps’ but still ‘stump up’.

You simply move loans but don’t move the amount of the repayment… keep throwing the now-extra $265 a month onto the loan. Remember, that’s the amount you are used to paying anyway so there is no additional pain to your hip pocket.

Your interest saving then leaps a further more-than $18,000, to $84,112. So in total, you’ve saved almost $100,000 just by being mortgage smart.

Better still, you get out of debt nearly five years early.

Jump on my free app to automatically calculate your own potential savings in money and time: My Mortgage Freedom Date (Apple and Android).

If you take advantage of the current mortgage war, how far forward – for no extra outlay – could you bring your mortgage freedom date?

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.

Image: Yahoo Finance
Image: Yahoo Finance
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