Nathan Tiberi, 39, wife Christine, 36, and two daughters Maya, 11, and Jada, 9, recently refinanced their home loan to save. Christine's beauty business – Be U Beauty – has been closed during the pandemic. Picture: Jake Nowakowski.
Nathan Tiberi, 39, wife Christine, 36, and two daughters Maya, 11, and Jada, 9, recently refinanced their home loan to save. Christine's beauty business – Be U Beauty – has been closed during the pandemic. Picture: Jake Nowakowski.

Save yourself a small fortune

Many mortgage customers are obliviously paying rates in the four per cent range that is costing them ten of thousands of dollars extra over their loan term.

Home loan interest rates are sitting at record lows - some owner occupier deals even have a "one" in front - and experts are urging customers to review their deals to ensure they are not getting ripped off.

Refinancing has significantly increased during the pandemic - Australian Bureau of Statistics data found from April to July about 114,000 borrowers remortgaged their loans worth $53.8 billion.

May was the busiest period, when about 31,300 borrowers refinanced - a 41 per cent increase on the peak at the height of the Royal Commission in 2018.

Here's how you can save yourself a small fortune by reviewing your loan.

DUD DEALS

For many borrowers paying down a mortgage is their biggest household expense and can easily become a set and forget financial product.

Mortgage Choice broker David Thurmond said it's not uncommon for borrowers to be left stuck on inflated rate deals.

"I've seen people come to me with rate of 4.5 per cent and clients can sit on these high rates for a while before they realise they need to do something," he said.

"If you go onto a fixed rate when that expires you then go onto the bank's standard variable rate and there is no discount applied to that variable rate."

REVIEWING YOUR LOAN

Financial planner Nathan Tiberi, 39, and his wife Christine, 36, recently refinanced the $750,000 mortgage on their four-bedroom home in Berwick in Melbourne's southeast.

Nathan Tiberi, 39, wife Christine, 36, and two daughters Maya, 11, and Jada, 9, recently refinanced their home loan to save. Christine's beauty business – Be U Beauty – has been closed during the pandemic. Picture: Jake Nowakowski.
Nathan Tiberi, 39, wife Christine, 36, and two daughters Maya, 11, and Jada, 9, recently refinanced their home loan to save. Christine's beauty business – Be U Beauty – has been closed during the pandemic. Picture: Jake Nowakowski.

Mrs Tiberi runs a beauty salon and has been forced to temporarily shut her business during the pandemic and rely on JobKeeper payments.

The loss of income prompted the couple to review their loan.

"We wanted to get savings on our interest rate and also unlock some equity in our home in case things got worse during COVID," Mr Tiberi said.

"We didn't know what the financial impact was going to be and I don't think anyone did back in April.

"We've now been locked down longer than Wuhun and still unable to leave our houses."

The couple refinanced their split loan with FASTlend where they were paying a rate of 3.45 per cent and 3.89 per cent, to a variable rate loan with ANZ at 2.72 per cent.

They also received $4000 cashback for refinancing and have kept their repayments the same at $3600 per month which is helping them shave down the principal faster.

Financial comparison website RateCity's spokeswoman Sally Tindall said not all borrowers are able to refinance given more than 300,000 mortgages are still deferred because of the financial hit of the pandemic.

"There a number of people who aren't in a position to refinance because they've lost their jobs or they've had their hours reduced," she said.

"Make sure you are in a position to refinance."

MAKING AN APPLICATION

ANZ's head of home loans John Campbell urged borrowers looking to refinance to have "all your documentation in place".

He said there's also increased scrutiny by lenders on a borrower's earning capacity.

"The new bank will ask you for all the information to verify income and expenditure," Mr Campbell said.

"A lot of focus at the moment is on income verification where you have seen a drop in income or people have had more variable pay, less money coming in or less bonuses."

He said in recent years there had been a lot of focus on a customer's expenditure but income still remained important.

"We need to be confident that you have ongoing, sustainable income," Mr Campbell said.

"Always make sure you speak to your lender or bank or broker and see what options are available."

Mr Campbell said to ask them, "do you think I'm a suitable candidate for refinancing my loan to another loan or should I just go to my existing lender."

He said loan processing at the moment could typically take around four to six weeks from start to finish.

CHASING COMPETITIVE RATES

Mr Thurmond said owner occupiers paying principal and interest should definitely have a rate under three per cent.

"They should be paying a variable between 2.6 and 2.7 per cent," he said.

"And for fixed rates they should be paying around 2.1 to 2.3 for a fixed rate."

Take the opportunity to discuss your home loan with a mortgage broker. Picture: iStock.
Take the opportunity to discuss your home loan with a mortgage broker. Picture: iStock.

He said he reviews his clients' rates biannually to ensure they aren't paying too much.

Mr Thurmond also said borrowers should use online financial comparison websites to check what other deals are on offer and if help is to contact a mortgage broker.

Lender UBank's executive Philippa Watson said "comparison sites are a good way to view your refinance options side-by-side".

She said it then comes to "narrowing down to a couple of choices so you can look more closely at the true cost of a loan, including the amount, term, repayment frequency and any associated fees and charges".

HUGE SAVINGS ON OFFER

RateCity calculations found if a borrower with a $300,000 mortgage switched from an owner occupier principal and interest rate of 4 per cent down to 2.5 per cent, on a 25-year loan their repayments would drop by $238 per month.

Over the life of their loan they would save more than $72,300 in interest charges.

Borrowers should use an online mortgage calculator or ask their bank or broker to crunch the numbers to see how much could be saved by getting a cheaper deal.

BE CAUTIONS ABOUT FIXING

About one in four mortgage customers are on fixed-rate deals but if borrowers are choosing to lock in their rate over a set term RateCity's Sally Tindall said it must be done with caution.

"Fixed rates are a lot less flexible than variable rates and they usually don't come with a mortgage offset account and there are limits to how much extra you can repay," she said.

"If you need to get out of the loan for any reason you could be up for hefty break fees."

BIG FOUR BANK - LOWEST VARIABLE RATES

Bank Variable rate Monthly repayment

CBA, Extra Home Loan 2.79% $1231

Westpac, Flexi First Option 2.29% (intro rate for two years), reverts to 2.79 per cent $1153

NAB, Base Variable Home Loan Special 2.69% $1215

ANZ, Simplicity Plus Home Loan 2.72% $1220

Source: RateCity.com.au. Based on a $300,000 30-year owner occupier principal and interest loan with a loan-to-value ratio of 80 per cent.

 

LOWEST FIVE LENDERS

Bank Variable rate Monthly repayment

Well Home Loans, Well Balanced Home Loan Special 2.17% $1135

Reduce Home Loan, Super Saver 2.19% $1138

Homestar Finance, Star Essential Home Loan 2.29% $1153

Tic Toc, Live-In Variable Home 2.39% $1168

Yard, Yard Home Loan Special 2.39% $1168

Source: RateCity.com.au. Based on a $300,000 30-year owner occupier principal and interest loan with a loan-to-value ratio of 80 per cent.


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