A whole generation of variable borrowers could be mortgage-free a decade sooner, according to a new study by Australia’s leading financial comparison website RateCity.com.au
The study followed reports that the majority of borrowers with a variable rate home loan are keeping their repayments at November 2011 levels before rates began to fall.
According to RateCity’s database of more than 100 lenders, the average standard variable home loan rate has fallen by 1.62 percentage points from 7.31 percent in November 2011 to 5.69 percent in July 2013.
Variable borrowers with a typical $300,000 home loan who keep their monthly repayments at the November 2011 level of $2,059 are adding over $300 per month to their mortgage.
If borrowers continue this trend and add an extra $300 to a $300,000 mortgage each month, they would potentially save over $151,000 and shave nine years and five months off a 30-year home loan (based on the historical average standard variable rate of about 7 percent).
Source: RateCity.com.au, based on a 30-year loan term, rounded to the nearest dollar.
Michelle Hutchison, Spokesperson for RateCity, said the results of the study proved that borrowers should take advantage of the home loan market and accelerate their repayments.
“Many Australians have taken a new approach to borrowing, which could see a whole generation of mortgage holders paying off their home loan a decade early.
“Even though the cost of a mortgage rises when rates increase, it’s worth adding as much as you possibly can to your mortgage, particularly when rates are low.
“Borrowers who don’t have the extra money to add to their home loan while rates are low could be in the wrong home loan so it’s worth comparing deals now and considering refinancing.
“By finding a 0.25 percentage point discount for a $300,000 home loan, it’s worth about $50 in savings per month. Add this to your mortgage and you could potentially save about $36,000 and cut over two years off your loan.”