Are my financing arrangements as competitive as possible? Countdown 1 to Property Observer wealth-creation strategy webinar
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The Reserve Bank’s latest cutting of the official cash rate is focusing the attention of property investors on how much they are paying in interest on their investment loans. Indeed, the latest cut and the varying responses of the lenders should prompt investors to make sure their loans are highly competitive.
First, you should understand exactly how much you are paying on your existing loan in interest rates and fees.
Upon request, your lender must provide you with a fact sheet setting out how much you are paying on your loan in dollar and interest rate terms. The fact sheet covers the total amount payable over the life of the loan (given the current variable rate), amount payable each month and ongoing fees. (See a sample loan fact sheet on ASIC’s consumer website, MoneySmart.)
Armed with the fact sheet on your loan, you can then compare competing loans.
Mitchell Watson, a senior analyst with interest rate researcher Canstar, suggests that borrowers prepare a short list of what appear to be the most competitive loans.
Interest-rate researchers such as Canstar and InfoChoice publish detailed tables of mortgage rates online.
Don’t just compare advertised rates but also the so-called comparison rates which incorporate the impact of up-front and ongoing charges (not all costs must be published), based on a 25-year, $150,000 loan.
Watson says the next step for property investors is to work out exactly how much they would pay in dollar terms each month and over the expected life of their borrowing for each of the competing loans on their short list. He points out that the mortgage calculators of the major banks provide a means for borrowers to compare the dollar cost of different loans from different providers. ASIC’s MoneySmart website also has a “mortgage switching calculator”.
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