Home loan booster

EFFIE ZAHOS

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If you want a guaranteed tax-free return of around 6% or 7%, look no further than your home loan. With interest rates so low, it’s now one of the best places to stash your cash. Figures from the Reserve Bank indicate that home owners know this, as they are around $160 billion ahead on their mortgages, stashing an extra $30 billion in there since the GFC.

According to the stats, each individual home owner is on average around 20 months ahead on repayments – that’s $40,000 on a $300,000 mortgage.

This is especially important given that the low rates are unlikely to last forever. “One of the barometers of interest rate directions is fixed home loan rates and, while we are still seeing some fixed rates falling, their descent has slowed significantly, which could be a sign of lenders expecting funding pressure to stabilise or lift in the near future,” says Alex Parsons, the CEO of RateCity.

It’s also a good time to shop around and work out whether you can save more. RateCity data shows the gap between the lowest and highest variable ongoing rates is now 2.01 percentage points, with rates ranging from 4.99% up to 7%. In dollar terms, that’s a difference of around $400 a month for a $300,000 home loan, or $139,000 over 30 years.

But before you jump ship, factor in any switching costs. If you have less than 20% equity, lenders mortgage insurance may prohibit you from switching.

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