How do interest rates affect my home loan?

Answer

Your home loan can end up costing a substantial amount of money. In fact, it’s likely to be the largest amount you ever borrow over such a long period. And small changes do add up, so it’s worth paying attention to the details – such as your home loan interest rates.

All things being equal, the lower your interest rate, the less interest you’ll pay over the lifetime of your loan. Even a small rate change can make a big difference over 30 years.

For example, if you had a starting interest rate of 5.45% and interest rates were to fall by just 0.25% pa, you’d save $16,789 on an average loan of $300,000 over a 30-year period.

It’s also important to find out the ‘comparison rate’ that takes into account fees and charges so you can compare like with like. Lenders are required to include a comparison rate in their advertising and marketing material.

But interest rates are only part of the picture. There are other ways to make savings on your home loan:

  • Work out where your money is going and where you can start making savings. These savings could go towards paying off your loan or could sit in your offset account.
  • Consider using an  offset account to reduce the amount of interest you pay.
  • Choose the right home loan for your personal circumstances. For some people it’s worth paying extra for more features, but others might be better off with a basic home loan and lower fees.
  • Splitting your home loan between variable and fixed rates gives you a degree of protection if interest rates rise and could allow you to pay off your home loan faster by making extra repayments.
  • Save on fees and charges by consolidating your loans.

 

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It’s important to consider your particular circumstances and read the relevant Product Disclosure Statement or Terms and Conditions before deciding what’s right for you. This information hasn’t taken your circumstances into account.

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