Just when you thought rates couldn’t get any lower the Reserve Bank went and cut the official cash rate to a razor thin 0.10 per cent.
But, as always, a drop in the official rate doesn’t necessarily mean that your home loan rate has lowered too.
While a small cut in interest rates may not seem like much, it could actually help you make significant savings, so it’s well worth making the effort to get the lowest rate available to you if you can.
As we mentioned in our blog post last week, refinancing to the lowest interest rate could save the average homeowner around $395 a month.
So, what should you do?
Find out what rates are being offered
The first step in scoring a lower interest rate is seeing what different banks and lenders are actually offering.
A quick online search should give you a good indication of the rates currently available.
Don’t forget to also find out what interest rate you’re paying on your current loan so you have something to compare other deals and rates to.
Call your lender
Once you know what is out there it’s time to call up your current lender to see what they can do for you.
Sometimes all it takes is the mention of a competitive lender’s offer to get your lender to come to the table and offer a better deal.
You may not be able to get your lender to agree to the lowest rate on the market, but any saving is worthwhile and if you like the other benefits that your lender offers you then you might be happy to stay on.
Consider switching – but be mindful of fees
If you’re not happy with your current home loan rate then you always have the option of switching to a new lender.
Before you do this though you should make yourself aware of any fees that your current or new lender may charge you for switching, such as break fees or application fees.
You’ll also want to check out the length of your potential new loan. If you refinance to a new 25 or 30 year loan then it might take you a lot longer to pay it off than your current loan. The longer your loan is, the more interest you’ll pay.
Also be mindful that if you have less than 20 per cent equity in your home you might be up for paying lenders mortgage insurance, which could negate any savings you might make from a lower rate.
Should you fix?
Many lenders – including the big four banks – have decided not to lower their variable interest rates in line with the RBA, however many have reduced their fixed home loan rates.
This means there are currently some very attractive fixed rate home loans on the market, with rates lower than 2 per cent.
If you want the reliability of knowing how much you will have to spend each month then a fixed home loan could be a good option, but fixed rate loans may mean that you can’t make extra repayments, or that you might be up for break fees if you decide to change loans during the set period.
It’s also worth noting that interest rates look set to stay low for the next few years at least, so there’s little worry of a rate rise anytime soon, if that’s something that concerns you.
For further advice though you should always seek out a financial professional or talk directly with your lender.