RBA rates on hold: Five ways to avoid getting ripped off
Savvy Australians looking to save extra cash need to run a fine tooth comb over their mortgage to make sure they are not seeping out money.
The Reserve Bank of Australia board keep the cash rate on hold at 0.25 per cent today - where it has sat since March.
These are five things you must check on your home loan to make sure you are not letting hard-earned money be wasted.
CHECK YOUR RATE
Sounds obvious but many people don't do this.
If you've had your loan for more than two or three years and haven't checked your rate there's a very good chance you are getting ripped off.
There are three-year owner occupier principal and interest three-year fixed rate deals as low as 1.99 per cent and variable deals at just 2.19 per cent.
Log onto your internet bank or contact your lender to check your rate - if you are anything starting with a "3" in front you need to take urgent action.
These operate as an everyday account that is linked to your home loan and the balance held in these accounts offsets the monthly interest charges.
For instance if you have a $300,000 home loan and $10,000 sitting in an offset account you only pay interest on $290,000.
Make sure your offset is 100 per cent effective.
For instance there are partial offset accounts on the market which means only part of the money in these accounts offsets interest charges.
Sneaky, isn't it?
Make sure you are not getting caught out.
TYPE OF LOAN
If you are an owner occupier you should be - if possible during these tough times - making principal and interest repayments.
Some borrowers do not actually know what type of deals they are on so if you're unsure contact your bank.
The ultimate goal as an owner occupier should be to own your home outright and the only way you can do this is by paying down the principal.
This is very important.
Banks charge interest costs daily before billing you at the end of the month so it's better to make repayments more frequently to lower your monthly interest charges.
Aligning repayments with your pay schedule can be a good way to go for those who get paid weekly or fortnightly.
Also, given there are 12 months in a year - 26 fortnights and 52 weeks - making weekly or fortnightly repayments can help you make sure you get in an extra month's worth of monthly repayments each calendar year.
For example if you are making a regular monthly repayment of $1000 you would repay $12,000 in a year.
Compare this to fortnightly repayments - $500 per fortnight - you would repay $13,000.
If you made weekly repayments - $250 per week - you would also repay $13,000.
If you can pay above the minimum amount to help you become debt free much sooner.
For instance on a $300,000 30-year owner occupier principal and interest loan if you made the minimum repayments each month they would be $547 and you would pay $126,600 in interest charges over the loan term.
Compare this to paying an extra $50 a fortnight - so $597 - you would pay off the loan three years and seven months earlier and save $16,600 in interest charges.
Originally published as RBA rates on hold: Five ways to avoid getting ripped off