A mortgage is a household’s biggest expense, yet many households simply set and forget their interest rate, which is costing them thousands, two advisers have explained.
In conversation with nestegg, uno Home Loans CEO Anthony Justice discussed how consumers should be looking to strengthen their position during the COVID-19 pandemic by paying less on their mortgage.
“The first thing is work out whether you have a good loan or not. Work out whether you are on competitive rates for your circumstances,” Mr Justice said.
“Be aware, and the second thing, take action. If you don’t ask, you don’t get. If you can’t renegotiate with your lender and are able to refinance, now is a good time to do so.”
The broker highlighted anyone who is looking to improve their net position by reducing expenses should look at their mortgage.
“If you’re trying to shore yourself up for this crisis, however it unfolds, having your biggest expense as low as you can get is a very good thing to be focused on,” Mr Justice said.
Former mortgage broker Ross Le Quesne agreed with Mr Justice, explaining short-term changes can have a big impact on the long-term gains for property investors.
Five years ago, rates were around 7 per cent, with an average rate over time being around the same mark. Mr Le Quesne explained that today, however, a good mortgage broker can get owner-occupiers nearly 5 percentage points less.
Mr Le Quesne also highlighted the opportunity that record-low interest rates are creating for investors due to the expenses incurred on interest rates.
“The biggest expense in any investment portfolio is the interest by far. Many clients are sitting on interest rates with 4 in front of them,” he said.
“If you can get down onto the high 2s on an interest-only product, if you have 1 per cent on a million-dollar property portfolio, that is massive money.
“For clients with $3 [million] or $4 million portfolio, we’re talking a [$30,000] to $40,000 going back in your pocket.
“That’s why it is important to look into your rates, as it is your biggest expense,” Mr Le Quesne said.
Pay if you can
While it is estimated that up to one in 10 Australians are currently taking a mortgage holiday, Mr Justice also advised mortgage-holders to be wary of the longer-term implications.
“We’ve seen a very high number of people going on a repayment holiday. The big thing to watch out for as a consumer is, it might be a repayment holiday, but the interest is still accumulating and re-added to the capital along the way.”
“It is a good short-term fix, but ultimately over the life of the loan, it is actually increasing the cost,” Mr Justice concluded.
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We Translate Complicated Financial Jargon Into Easy-To-Understand Information For Australians
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