Rate cuts an opportunity to reassess your mortgage
After a year of keeping interest rates on hold, the Reserve Bank’s decision to cut the official cash rate not once, but twice at its final two meetings for 2011 is certainly a nice Christmas present for many property investors and home owners with a mortgage. But a question that I seem to often get asked, as do many brokers in the Century 21 Home Loans network, surrounds how borrowers and potential buyers can ensure they are able to maximise the rate cut, beyond simply the immediate reduction passed on by their lender.
In addressing this concern I would say that the relationship you have with your mortgage broker is probably more important than ever before, and now may present a good time to sit down with a professional to revisit your options. A proficient mortgage professional will have a thorough understanding of a wide range of products currently available and should be able to advise you on the best course of action for your specific situation.
Rate cuts – has your lender passed them on?
With the recent spate of rate cuts and potentially more in the pipeline, first and foremost, it’s worth checking to ensure your lender is passing on the cuts or at to what extent. Don’t be the borrower who is missing out on cuts.
Reassess your mortgage
With constantly varying lending criteria, fees and the like, mortgage holders may find that a combination of lowered interest rates and changing conditions have made alternative products more appropriate for their circumstances. Your mortgage broker should be able to take you through a wide range of product options and clearly explain how the refinancing process works – ensuring you have the right information to make an informed mortgage decision.
Increase the frequency of repayments
It is certainly tempting to capture monetary savings immediately by reducing your monthly repayments in line with the rate cuts, and for many people struggling with affordability concerns, this will be a necessity. However, if possible, I would advise people to consider the option of maintaining current repayment levels and potentially even increasing the frequency of repayments (e.g. fortnightly rather than monthly). This will most probably allow you to get your mortgage principal paid off more quickly, which will also likely reduce the interest you must pay over the long term.
For many borrowers, alongside the prospect of making immediate savings, rate cuts can present an ideal opportunity to reassess your mortgage situation and identify how further savings can be made in the future. Working with a professional mortgage broker who has a thorough understanding of your personal situation should position you to be able to make an informed decision and take full advantage of recent (and future potential) rate reductions.
Charles Tarbey is chairman and owner of Century 21.
