Articles About Finance And Refinancing

Australian Interest Rates Rise Again -- What Can Borrowers Do To Relieve The Pressure?

Melbourne, Victoria (PRWEB) March 5, 2008 -- Mortgage Choice, Australia's Best Mortgage Broker*, wants Australian borrowers to know there are a number of fairly simple ways to reduce the pinch this latest mortgage interest rate rise may inflict on their budget.

The Reserve Bank of Australia (RBA) increased the cash rate (Australia's official interest rate) by 0.25 percent to 7.25 percent at its March meeting, which is very unwelcome news for borrowers who have now seen two cash rate rises already this year.

Local Mortgage Choice loan consultant, Anthony Smith said variable rate loan borrowers should ignore their heavy hearts and instead attend a heavy hand to their repayment mortgage strategy.

"An increase of 0.25 percent will make a difference to repayments on the average property loan, though only modest. On a loan of $250,000 over 30 years at the average standard variable rate of 8.98 percent, a move to a 9.23 percent interest rate - $2,053.13 per month from $2,007.88 per month - will mean an additional $45.25 per month, or $10.40 per week," he said.

"Whilst yet another increase, in isolation that is the amount many people spend on a week's worth of morning coffees or one to two mid-week lunches. It can be disappointing for borrowers to give up such treats but it is in the best interests of their budget, at least until their mortgage rate eventually decreases".

Mortgage Choice has these self-help tips for those paying off a variable rate mortgage:

1. Debt consolidation:

Think about rolling all personal loans and other debts into your mortgage. This means you will be repaying them at a lower interest rate, though over a longer term. Just make sure you are sensible with your credit cards and loans after consolidating!

2. Fix some or all of your loan rate:

Fixing the interest rate on some or all of your loan will give you surety over repayment amount for the length of the fixed term. This can be a good option for those managing a strict budget but ensure you calculate the costs associated with doing this plus the higher interest rate you will probably pay at a fixed rate.

3. Reassess -- is it time to refinance?

Your loan may offer features such as redraw that you don't use. A loan with more flexibility, i.e. more features, is often more 'expensive'. Consider changing to a basic product with no - or less - extras as it may have a cheaper interest rate. For example, on a loan of $250,000 over 30 years, the change from 9.23% ($2,053.13 per month - standard variable) to 8.64% ($1,947.14 - basic variable) is a saving of approximately $105.99 per month.

4. Make a lump sum payment and watch your loan shrink:

Any spare money you can add to your loan, such as a tax return, bonus or inheritance, can often make a significant difference to the overall loan term and/or the repayment amount.

5. Refinance extra out of your loan to reduce it:

Made extra repayments? You can refinance so your repayments reflect what you owe currently, not what you originally owed. For example, assume a standard variable loan (9.23%) has 20 years remaining and is scheduled to be at $230,000 (i.e. $2,053.13 per month). However, extra repayments have reduced the balance to $180,000, so refinancing the loan over the same 20-year period at $200,000 ($1829.19 per month) will reduce your minimum repayments by approximately $223.94 per month.

6. Lengthen your loan term:

Depending on your property investment and mortgage strategies, you may want to consider increasing your loan term to 30 years (whilst uncommon, there are 40-year loans available). Yes, you will be paying it off over an increased amount of time but your repayment amount will decrease. Say a $250,000 loan at the standard variable rate of 9.23% has a loan term of 25 years ($2,137.57 per month) that is extended to a 30-year term ($2053.13 per month) -- the repayments will decrease by $84.44 per month.

7. Most importantly, always factor in future rate rises:

Any savvy borrower is already repaying their mortgage at a rate at least 0.25% higher than is required. This ensures a rate rise can be easily managed, and if rates don't rise -- or fall -- you are ahead of the game and will see your loan term decrease.

Visit your local Mortgage Choice website at http://www.mortgagechoice.com.au/anthony.smith or call 039585 7779 (Melbourne).

* Australian Banking & Finance Magazine Awards, May 2007.

For further information or to arrange an interview please contact:

Anthony Smith

Mortgage Choice

039585 7779 (Melbourne, Australia)

About Mortgage Choice

Mortgage Choice is Australia's leading mortgage broker. It provides professional home loan advice on, and choice of, products offered by a panel of over 29 of Australia's leading lending institutions and its accredited loan consultants do not charge customers for their services. Mortgage Choice does not have its own products, and consultants are paid the same commission regardless of the lender or product chosen by the borrower*.

Through its national network of over 449 franchises and 678 loan consultants supported by Group and State Offices, Mortgage Choice writes almost 1 in every 20 Australian residential loans.

The company was listed on the Australian Stock Exchange in August 2004 (ASX sign: MOC).

Recent awards/recognition: 2008, 2006 and 2005 Mortgage and Finance Association of Australia Awards Retail Mortgage Broker of the Year; 2008 MFAA Awards Operator of the Year; 2007 Lending Central Awards Mortgage Broker of the Year; 2007 Franchise Council of Australia Excellence in Franchising Awards Franchisor of the Year finalist; 2007, 2005 and 2004 Australian Banking & Finance Awards Best Mortgage Broker; 2006 BRW Magazine Top 500 Public Companies list; and 2005 Australian Mortgage Awards Best Branding and Most Effective Internet Presence.

* This information refers only to loans provided by the panel of over 30 lenders with whom Mortgage Choice has an arrangement, under which it receives commissions and other payments.

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