A fall in interest rates should spark a review

Earlier this month we saw the Reserve Bank of Australia (RBA) reduce interest rates for the first time since April 2009 – a reduction of 0.25% to 4.5%.  In our opinion this reduction provides an excellent catalyst to review your current financing arrangements.

Unbelievably we are still seeing most people paying standard variable rates on their loans.  The reason this is unbelievable is that we are able to obtain (in most cases) discounts of between 0.7% - 1% off these rates.  Now if these savings were just a few hundred dollars over the year, we could understand that borrowers may just let things sit, but when the discounts add up to $300 or $400 per month we simply cannot understand why so many people do not review their financing arrangements.

Unfortunately this is not the only area where we see issues with clients’ financing arrangements, other common mistakes are: 

• Not using an offset account, but having money invested in term deposit or in everyday transaction accounts
• Paying principle and interest on rental property loans, while still having personal debt on their home
• Holding personal loan and credit card debt instead of consolidating into cheaper secured debt
• Using a line of credit instead of a home loan (in our experience, a line of credit simply doesn’t work if the goal is to pay the home off sooner) – there are better options.

Finally, with the interest rate environment changing from an increasing stance to a reducing stance, fixed rates will become more appealing.  While it maybe a little early to make the leap to fixing your loan, it is essential that if fixing a loan is appealing, that the decision is made and loan fixed prior to expectation of interest rates rising. 

Now this may seem like common sense, however most people make the move too late.  The best time to fix rates is before the market expects rates to increase; by doing this the long term rates are still low.  If you decide to fix rates at a time when commentary has started about a rate increase, its too late, the fixed rates have moved.

If you have not reviewed your loan over the last 12 months, we strongly suggest you do so.  The conditions are right to benefit from a review, especially considering the banks are still fighting amongst themselves to gain market share.

If you would like a free review (which can be done via phone, email or in person) please do not hesitate to contact our office on (07) 3284 7752.