Leading financial expert Mark Bouris says millions of Australian mortgage holders are missing out on huge savings by not doing one simple thing.
A leading financial expert is urging mortgage holders to refinance their home loans to save thousands of dollars in interest as the Reserve Bank of Australia (RBA) seeks to raise the cash rate for the third time this year.
Australians are bracing for base interest rates above 1% ahead of the RBA board meeting on Tuesday.
It will be the third hike in as many months, after the RBA raised rates by 50 basis points to 0.85% in June, 35 days after their first increase in May from a record low of 0.1%.
Economists are also predicting further hikes, with the base rate expected to be above 2% by the end of the year.
It’s time to check your interest rate
Yellow Brick Road executive chairman Mark Bouris said mortgage holders who don’t check their interest rates will feel the pinch as rates rise.
“There is a huge swath of Australians who never bother to check their interest rate,” Mr Bouris said.
“They don’t know if they’re paying too much and they never actually refinance, so at the end of the day they’re paying way too much.”
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Not only can variable rate mortgage holders save thousands of dollars by “taking control” of their finances, but those completing their fixed rate term can also benefit from rising interest rates.
Consider a mortgagee who, five years ago, took out a $500,000 loan for 30 years, with an interest rate of 3.35% and monthly repayments of $2,463.07.
According to Yellow Brick Road calculations, they can save up to $28,000 in interest if they were to refinance at 2.48% today, saving $490.06 per month.
“You can’t sit back and complain about rate hikes when you can effectively save 4 rate hikes by refinancing,” Bouris said.
Comparing Australia to America where mortgage holders refinance there regularly, Mr Bouris says Australians need to stop “comforting” and instead recommends that borrowers refinance quarterly.
“You should take it a step further and have a mortgage broker available to you that you check in with every month,” Bouris said.
“And if you have a good mortgage broker, they should check with you…In other words, the broker does the work for you.”
Beware of cashback offers
A selling point to entice mortgage holders to refinance is repayment offers, where banks and lenders can give borrowers up to $4,000 to switch loan providers.
However, Bouris warns that sometimes cashback can do more harm than good if you don’t understand what you’re signing up for.
“I would be wary of foreclosures because you will never outsmart a lender and they will always get it back somehow, if not now, over time,” Bouris said.
“I would look for the highest rate that would get me the same amount of money that I currently owe.”