Early present for homebuyers
THE Reserve Bank has effectively presented homebuyers with an early Christmas gift by leaving the official cash rate at 4.75%.
And no doubt, many homebuyers will try to squeeze a little more value from this by considering a switch to a lower-interest home loan.
Early this month, ASIC released an online calculator to help borrowers calculate how much they might save by switching to a cheaper home loan.
One of the challenges with using the calculator, of course, is that home-loan rates can change so rapidly. As well, buyers will have to satisfy themselves that they are comparing like with like.
The calculator shows how long it will take for a loan switch to save money after allowing for switching costs; and how sooner the cheaper loan will be paid off (or how much will be saved in monthly repayments).
ASIC reports a spike in inquiries about switching between home loans and about loan exit fees. In turn, the regulator is urging borrowers to compare home loans.
This determined attitude among homebuyers to try to hunt down a better deal is no doubt largely driven by the increase in the official rate seven times since October last year.
And despite the strong rises in household income over the past 12 months, consumers are cautious in their overall spending as reflected in the current high household saving rate and restrained retail spending.
In introducing its mortgage-switching calculator, ASIC gives the example of a homebuyer with a $250,000 loan and 20 years of repayments remaining.
The borrower in this case study makes valuable savings by switching to a loan with a 0.3% lower rate. The exit fees on the old loan and entry fees for the new loan are $700. According to the calculator, the borrower will save $40 a month in repayments or pay off the loan 10 months earlier.
See the calculator and ASIC’s checklist for switching mortgages.
An excellent way to know which home loans to compare is to look on the website of interest rate researchers Canstar Cannex and InfoChoice.
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Robin Bowerman, Vanguard Investments Australia's Head of Retail, has more than two decades of experience in the finance industry as a writer, commentator and editor.