Don't Reduce Home Loan Repayments
Illawarra Mercury
Sunday August 24, 1997
A Wollongong accountant and financial adviser warns home loan borrowers not to reduce their repayments as a result of the latest rate cut.
Unanderra-based Andre Dekker warns borrowers to be on the lookout for a letter from their bank informing them of reduced repayments.
He strongly recommends contacting the bank immediately and increasing the repayments to the level they were before the rate cut. This strategy will leave you debt free years sooner than if you allow your repayments to be reduced.
In the past, borrowers may have been afraid to make higher repayments than required by the bank because that strategy left no spare funds for emergencies.
However, says Mr Dekker, "many loans today have a superior design with a redraw facility which enables you to redraw payments you have made ahead of schedule. This allows borrowers to make extra repayments with confidence that they can use that money again if needed".
Mr Dekker, a member of the Count Financial group, said Count had prepared a checklist for anyone who was looking for a loan or to refinance:
1) Find the lowest standard variable or fixed rate loan available. The interest rate and fees are by far the most critical factors in determining how quickly you pay of your loan. The rate can add or eliminate the number of years it takes to repay your loan.
2) Don't buy a Rolls Royce loan unless you really need it. Flexibility comes at a price. The questions borrowers must ask are: what is the additional cost to me and is the flexibility really worth the extra payments?
3) Is the rate competitive for merely one year or is the loan priced to be competitive over the term of the loan? Mr Dekker said: "It is crazy to hook yourself into a loan that has a special rate for just one year when it converts to a rate that is higher than other loans. The reality is that your loan will take many years to repay, so you will save more money by having a loan that is competitive over the life of the loan."
4) What is the effective interest rate when you take into consideration fees? The Count Home Loan has a standard variable rate of just 6.2 per annum with no monthly fees and a redraw facility. The establishment fee is $500. Most importantly, borrowers can be confident this loan will remain competitive over time because the loan has one of the most efficient distribution methods in Australia - more than 420 accounting firms.
© 1997 Illawarra Mercury