Home Loan Interest Rates Should Not Be Above 4% - McCarthy Group Home Loan Interest Rates Should Not Be Above 4% - McCarthy Group

One third of borrowers do not know their current home loan interest rate. Many believe that small fluctuations in their interest rates don’t make that large a difference in the long run. Are you in either one of these groups? You could be losing a lot of money!

Home Loans are a very long term liability in acquiring a property. 20 year loans are fairly standard, and in all of that time you are constantly accruing interest on the outstanding loan value. If you took up a loan of $800,000 with a 4.32% interest rate over a 20 year loan term, you would be paying almost $395,000 in interest over the course of the loan! And that’s assuming the interest rate doesn’t increase over the loan term, which being a variable loan, undoubtedly would.

Having said that, we all understand that dealing with interest is just a part of becoming a home owner. Nobody has $1,000,000 just hanging around to purchase a home in Sydney after all.

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Then again, the person that owns this home in Potts Point probably does…

However, given the monumental amount of money that goes back to the banks from home loan interest payments, wouldn’t it make intuitive sense to keep an eye on what rate your home loan is at so that you can determine just how much you are losing in interest payments? That $395,000 figure is based on the assumption the rate doesn’t move about, but what if after year one the rate changed from 4.32% to 4.82%? Suddenly the interest cost over the next 19 years is almost $47,000 more!

Just from that example, it is logical to keep track of the interest rate your lender is charging you. This should of course make you think about recent news, in which most lenders have passed along increased interest rates to borrowers.

But let’s take it a bit further, going back to the heading of this post. If your home loan interest rate is above 4%, you are paying too much in interest. It is as simple as that.

business, people, finances and money saving concept - businessman with piggy bank and coins at office

Reduce your interest and you’ll actually be able to save some real money!

More often than not, people take up a home loan with one of the big four banks. To quantify that, in September this year 81.6% of home loans processed were with one of the Big 4. While there are a lot of reasons to go with these corporate giants, there are also a lot of reasons not too.

If you sit down with a money coach, you will clearly see that just because the major banks are the biggest, it doesn’t necessarily mean that they’re the most competitive. This is because the big banks don’t really need to compete with the smaller lenders, just amongst each other.

A lot of people find that they aren’t comfortable taking up a loan with a smaller lender, because they assume it’s at greater risk. This sounds fair enough, but who is lending who the money here? We’re not talking about a pensioner investing their life savings into a bank. We’re talking about a government regulated lender who is providing a loan to you.

It might not be glamorous, but it'll save you a tonne of cash

It might not be glamorous, but it’ll save you a tonne of cash

If for no other reason, smaller lenders give you the ability to renegotiate with your existing bank. If your bank isn’t giving you the interest rate you deserve, you have options, never make the mistake of thinking you can’t move your home loan to a different lender. Unfortunately most banks are more willing to give extra discounts for new customers instead of rewarding their existing customers for being loyal.