Ignoring your home loan is a bad idea at the best of times, but in a world of high interest rates, it’s a very costly mistake.
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If it’s been a while since you’ve looked at your home loan, you might be shocked to learn how high your interest rate is right now. We have entered a world of rising interest rates and high inflation. This is no reason to panic.
But that means borrowers who don’t proactively seek out the best deals lose out. Let’s see why and what you can do about it.
1. The cost of living keeps rising
Inflation is one of the big stories of 2022. Many common expenses of daily life have become much more expensive. This includes gas, groceries, electric bills, rent, and just about everything else.
The rising cost of living is reason enough to review your mortgage. If you can get a better rate on your home loan, you automatically reduce one of your biggest expenses.
2. Interest rates are also rising
The Reserve Bank of Australia (RBA) has raised interest rates several times this year. This has boosted home loan repayments for most borrowers by hundreds of dollars a month.
Interest rates are now at levels not seen since 2016, which is a big shock for borrowers who have grown accustomed to low rates in recent years.
The official cash rate (which determines interest charges for borrowers) has jumped this year from 0.10% to 1.85% in just a few months.
This means that if you had a $600,000 home loan with a variable interest rate of 2.00% at the start of the year, it would now be at 3.75%.
This would increase your monthly repayments from $2,217 to $2,778. That’s an increase of $561 per month.
3. You’re probably not getting the best deal right now
There’s another reason you need to review your home loan. This is because your lender may have charged you a higher rate than necessary.
Here’s how it goes. You apply for a mortgage with a favorable interest rate in 2019. You are approved. You sign the contract and start making repayments. You never really think about the loan again.
Meanwhile, interest rates drop even further and your lender starts offering even lower rates to attract new borrowers. But he keeps you on your old rate and hopes you don’t notice. Most borrowers don’t.
You can actually check this out for yourself pretty quickly. First, find your current mortgage rate (check your last loan statement). Then go to your lender’s website and see what they offer borrowers for the same type of loan as yours.
You might be shocked to see the difference.
Fortunately, some lenders in Australia do not. You can look for lenders that offer “automatic rate matching” or that promise “one rate for all customers.”
Unloan is one of the few lenders to offer a single rate for all borrowers of the same type of loan. This way, existing loyal customers and new ones can get the same deal.
4. Refinancing your mortgage is a lot easier than you think
Another reason to review your home loan is that it’s much easier to refinance than you might think.
Once you have a home loan and have made regular repayments, most lenders consider you an ideal borrower. You already own a property, hopefully have built up equity and have a strong repayment history. Lenders want your business.
And many lenders are now offering fast, fully digital home loan applications. These lenders often have very low rates and target refinancers because these loans are easy to approve quickly.
For example, Unloan is an online lender that currently only lends to refinancers and has a digital home loan application system. A request to upgrade to Unloan can only take a few minutes.
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