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On this episode of The nestegg Podcast, host Maja Garaca Djurdjevic and three experts discuss the property price movements, fintok and finfluencers, and tax time.

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Steve Waters, director of Right Property Group, chats about the resilience of the property market in Victoria, where another lockdown is currently in place, as well as Westpac’s latest surprising predictions for property price movements.

RMIT’s senior lecturer of finance, Dr Angel Zhong, reveals the rise of fintok and finfluencers and the dangers social media presents to financial markets.

And lastly, tax and super guru Timothy Munro talks about tax time. He reveals what Aussies need to be mindful of as we head towards 30 June, and why some should look at engaging a professional this tax time.

Have a question for our experts? Get in touch at [email protected] and you might get featured on the next episode.

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Why it pays to have a principal and interest loan

By Cameron Micallef

August 10 2020
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Borrow

Why it pays to have a principal and interest loan

By Cameron Micallef
August 10 2020

Owner-occupiers who are paying principal and interest on their mortgage are being rewarded by financial institutions with a lower interest rate.

Why it pays to have a principal and interest loan

By Cameron Micallef

August 10 2020
Share

Owner-occupiers who are paying principal and interest on their mortgage are being rewarded by financial institutions with a lower interest rate.

The latest analysis by comparison site Mozo found that principal and interest loans are 68 basis points below those paying interest-only loans.

With the Reserve Bank shaving 50 basis points off the official cash rate since March and access to a wholesale interest rate of 0.25 per cent, lenders have room to move when it comes to attracting the type of customers they want.

The comparison site highlighted that with record-low interest rate (50 basis points being shaved since March) banks have plenty of wiggle room.

“If you’re living in your home and you are in a position to pay principal and interest, the banks want you on their loan books,” said Mozo director Kirsty Lamont.

Mozo found that the leading variable home loan interest rate for an owner-occupier paying principal and interest is 2.19 per cent, 168 basis points below the average interest-only rate.

“The numbers show the banks are sending a clear message to home loan customers, pay your principal and you’ll be rewarded with a great rate,” Ms Lamont said.

“With the financial pressures caused by COVID putting mortgage-holders and house prices under pressure, if you can afford to pay the principal, comparing what’s on offer and banking a rate down around 2 percent will ultimately leave you in a better financial position.”

On an average $400,000 variable home loan, an owner-occupier paying principal and interest could save $92,575 over the life of their loan by switching to the most competitive rate.

It’s a similar story with fixed home loans, with the lowest average one-year fixed loan for owner-occupiers paying principal and interest coming in at 2.54 per cent 54 basis points below those paying interest-only.

Changing rates

Separate research by RateCity found that 43 per cent of Australian mortgage-holders are looking to refinance to a better rate, taking advantage of a record-low cash rate.

By comparison, a survey conducted by RateCity in 2018 revealed that 19 per cent of borrowers were looking to refinance, following the banking royal commission. That’s more than double in just two years.

Sally Tindall, research director at RateCity, highlighted that mortgage-holders are no longer tolerating overpaying for their mortgage.

“The loyalty tax gets worse the longer you stick with your bank.

“It’s taken a pandemic to get people to shift their mindset, but hopefully we’ll come out of it more budget-conscious and less complacent towards our mortgages,” she said.

Ms Tindall highlighted that the large financial institutions are willing to fight for consumers, meaning mortgage-holders can take advantage.

“The banks are pulling out all the stops, too, putting some of the biggest cashback offers and rock-bottom rates on the table and adding more flexibility on fixed rate loans to attract new business – and it is working.”

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About the author

Cameron Micallef

Cameron is a journalist for Momentum Media's nestegg and Smart Property Investment. He enjoys giving Aussies practical financial tips and tricks to help grow their wealth and achieve financial independence. As a self-confessed finance nerd, Cameron enjoys chatting with industry experts and commentators to leverage their insights to grow your portfolio.

About the author

Cameron Micallef

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