Are We Too Caught Up On Interest Rates?

Brendon argues that it’s not all about finding the best interest rate.

At Velocity our job is not only to get you the best loan, it’s also to make sure your mortgage is geared to your specific situation in such a way that will have you paying it off faster.

So, on this note, here are a few things to consider:

 

  1. Interest rates aren’t the be-all-and-end-all.

Yes, they matter of course and we will be as competitive as anyone in seeking good rates, however, the difference this makes is only limited.

For example, on a $500k mortgage, a 0.2 per cent difference in interest rates alters the fortnightly repayments by $13.50 a week difference over the life of the loan.

 

2. Smart budgeting can save you bucket loads.

Once you’ve done your budget and you discover you have, let’s say, $75 a week left over after expenses. If you put that $75 a week against a $500k loan you’ll save $100k ($103,596.32 to be precise) and also save six years off your mortgage.

 

3. Maintaining repayments when interest rates drop.

When it comes time to re-fix your loan, let’s say you’re currently paying 5.5 per cent on your $500k loan and your interest rate drops to 4.25 per cent (assuming this is the case for the remainder of your loan). If you keep your repayments the same rather than dropping them as a result of the lower interest rates, then you will save yourself $101,277 in interest, and you will pay off your mortgage seven years earlier. *

 

*Obviously when rates change, you will need to maintain the difference for this to be true.

So, there you go, finding a good interest rate is just one factor to add to the mix of discussion along with smart budgeting and not always opting for the bare minimum when it comes to repayments. As always, we’re more than happy to chat through all these and more options.

 

Brendon Ojala is a Registered Financial Adviser with Velocity Financial. No investment decision should be taken based on the information in this blog alone. A disclosure statement is available free of charge upon request.