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Cut Years Off Your Home Loan: Turn a Rate Cut into $41k in Savings
119 Plays18 days ago
A 0.25% rate cut might sound small, but in this episode, we break down how it could slice $41,000 off your mortgage and cut years off your loan—if you play it smart. Learn how upcoming rate cuts, smart repayment strategies, and refinancing opportunities can help you make the most of today’s changing market. Whether your bank passed on the full cut or not, this is your guide to turning small rate shifts into big savings.
Ready to explore your options? Get a free assessment from the experts at Hunter Galloway: huntergalloway.com.au
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Transcript
Impact of Rate Cuts on Mortgages
00:00:01
Speaker
I'm show you how a rate cut can slice $41,000 off your mortgage. There's been one rate cut so far, there's more predicted and they're creating huge opportunities for homeowners to save big on your mortgage. You could save tens of thousands of dollars and cut years off your mortgage.
00:00:14
Speaker
Sounds pretty great, right? I'm going to show you exactly how to take advantage of these rate cuts.
Introduction to the Podcast: Buying Your First Home
00:00:19
Speaker
Welcome to the Buying Your First Home podcast, your personal guide through the Australian housing market. Here we tackle the big questions and the small details that come up when buying your first home.
00:00:29
Speaker
From financial prep to finding the right neighbourhood, we're here to ensure that you've got all the knowledge at your fingertips. So let's take the first step towards unlocking the door to your new home.
How Rate Cuts Affect Mortgages
00:00:44
Speaker
right, so let's dig deep into the recent rate cuts and potentially how there's more rates to come and how they're going to impact your mortgage. The Reserve Bank of Australia has cut the official cash rate by 0.25% so far, and a lot of lenders have passed that on to most people's variable rate interest rates. Now, while 0.25% doesn't sound like much, even small changes can make a huge difference to your home loan, especially if you take the right approach.
00:01:04
Speaker
Let me show you an example. Let's say your original loan was $642,000 at years. the rate After rate cut,
00:01:15
Speaker
you know you rate is six point eight percent the new month repayments three thousand eight hundred and ninety two and you saving about ninety six dollars a month in your payment Per year, that works out to be $1,152. But if there's more rate cuts later in the year, a lot of the banks are predicting up to four rate cuts in 2025, a total of 1%, your new interest rate would be 5.33, your new monthly repayment is $3,579, your monthly savings is $409, and your yearly savings is just under $5,000.
00:01:41
Speaker
Now, as great as it is having another $400 a month in your pocket, even better is potentially paying off that loan years faster. Instead of lowering your payments each rate cut, you consider maintaining them at the original or current $3,988.
00:01:53
Speaker
If you kept your payments at the pre-rate cut amount, after one rate cut of 0.25%, you potentially save $41,000 interest over life of the loan and pay off your loan two years and four months faster.
00:02:04
Speaker
After four rate cuts of 0.25%, so a whole percent rate cut, you potentially save $150,000 and shave seven years off your loan by just keeping the repayments the same as they were.
Bank Responses to Rate Cuts
00:02:15
Speaker
So even a modest rate cut can add up. Some banks will not automatically lower your repayments. So this may happen automatically without you realizing and if you're comfortable with your cash on your budget, you can just leave it. Other banks like Macquarie and Westpac will automatically lower your payments, the new minimum amount.
00:02:28
Speaker
So potentially you need to ask them and say, hey, no, I want to put it back up to where it was. want pay extra and get rid of this sucker as quick as I can. All right, so that's a super quick intro on how rate cuts can save you money. But what happens if your bank isn't playing ball? Well, there's some banks like Bank of Queensland Specialists and Virgin Money that didn't pass on the full rate cut.
00:02:45
Speaker
And that's where refinancing may come into the fold. Think of refinancing kind of like upgrading your mobile phone plans. When you first signed up for your mortgage, it may have been the best deal. But now a couple of years later, it may not be as good a deal.
00:02:56
Speaker
Different banks can be competitive at different times in the market and refinancing could give your home a bit of a refresh, bit of a spring clean and help you pay off that thing quicker.
Refinancing Considerations and Costs
00:03:04
Speaker
You might want to consider refinancing if your bank didn't pass on the full rate cut. If your bank's rate isn't that competitive, you might have had your property value increase and the bank's still thinking like you've got a 10% deposit or if that differential, if your current rate say 6% and there's banks offering 5.5%, it could make sense to refinance even though there are some costs.
00:03:21
Speaker
Which comes to some of the drawbacks of refinancing. There are fees, generally it costs about $1,000 to $1,200 to switch lenders just because there's usually like a discharge fee, a processing fee with your current bank, there may be new setup fees with a new bank.
00:03:33
Speaker
There's registration of mortgage fees, there's discharge mortgage fees, there's government fees that you pay and some small change over cost. So it's not completely free. And if you're changing for like a 0.01% difference, it probably won't be worth it because you're not going to be able to recoup those costs of switching.
00:03:48
Speaker
But like i mentioned before, if you're changing for say half a percent difference, it can make a world of difference. There's a really awesome calculator on ASIC I'll include in the link below. It can give you a sense of how long it'll take to recoup the cost of switching just to make sure it is definitely financial beneficial to move banks and you're not just chasing a lower rate for no real financial benefit once you pay the fees and everything else.
00:04:06
Speaker
All right, so the way to use this mortgage calculator is put in your current loan balance. So we'll say the example before, um let's say your current interest rate is 6.33, the term remaining is 25 years. um Say if, like said, costs about $1,200, you need to put in all your regular fees, that you might have like $3.95 annual fee.
00:04:24
Speaker
um Say there's a new bank that's offered you a rate of 6.1% and the regular fees are the same annually.
00:04:35
Speaker
hele um So if you're reducing your rate by say 0.23%, is it worth it? Yeah, potentially. It's going to take 15 months to recoup those costs of switching.
00:04:46
Speaker
But over the life of the loan, you might pay off the loan 18 months quicker. The only risk when you're sort of moving that close is if there are future rate drops in the next couple of months and they do something like say Virgin or Bank Queensland Specialist did, um you might end up having to switch again. You may not recoup your costs. So that's where it might be a bit marginal. And you know if the rate's closer, 6.22, it's only 0.1%. it's to take you three years to recoup the cost and you think you might end up selling the place or doing something in the next two years, then it may not make sense to refinance. So have a chat to your broker, run through his calculator.
Role of Mortgage Brokers in Finding Deals
00:05:20
Speaker
But I really like this one. it's just a quick way to be like, oh there's a bit of a sanity check to see if it makes sense to switch.
00:05:24
Speaker
So the calculator is really powerful. it's going to show you how much money you're going to save each month by making the minimum repayment. So that's if you get a rate drop, the new rate is lower, the new repayment is lower, how much you going to save in that case. But I think the more powerful one is if you make higher payments. So if you keep making your payments, say based on 6.33% and you get a lower interest rate, then potentially you're going to pay off the loan 11 months faster. So it's pretty amazing, really good calculator and super easy to use, like you can see. Your mortgage broker can help you fill out this calculator and see what's available in the market.
00:05:52
Speaker
Like i mentioned before, one big thing that changes a lot is if you bought your home, say two, three years ago, you had a 5% deposit, you might might have used the home guarantee scheme. Your property may have gone up in value. So now your loan, instead of being at 95% of the home value, your home value might have increased.
00:06:06
Speaker
It might be at 70% of the home value. There's going to different deals in the market and your bank doesn't always recognize that increase in value. So have a chat to your broker and see what's available in the market there. Which brings my next section, how do you compare other mortgage offers?
00:06:18
Speaker
So if you've tried to hit up your bank and say, hey bank, I'm going to leave, what else is in there at the market? um It could be worth looking at refinancing. This is where it pays to do homework or speak with the mortgage broker to see what's possible. Why would you use a mortgage broker? Well, the benefit is we do all the legwork for you, we research different event lenders, see what's possible, even look at different features that might be important for you you. might have a bank that has an offset account. You might really like how that's set up just for your budgeting purposes.
00:06:40
Speaker
It's easy to kind for your cash flow. You might have different accounts for your future savings. If you go to some of the online lenders, they may only have redraws. You have to change how your cash flow works. You have remove direct debits and everything else like that. So consider that. And even the internet banking facilities. I've had people go to smaller non-bank lenders.
00:06:56
Speaker
They might go to like FirstMac or something like that, who basically have no internet banking facilities, pretty minimal offset account. You don't have like the visa debits and that sort of thing. So Just need to be careful of that and look at all those features and just look not just at the rate because it's obviously important to save money. But if you can't take advantage of your offset account, you might have $50,000 or $100,000 sitting there, then it could cost you more in the long run.
00:07:17
Speaker
The other benefit is with the brokers, we obviously save you time from running around. We can negotiate with the lenders. So generally, if we know there's a special deal with Westpac and you really want to go with ComBank or something, we can say to CBA, hey, try match this, we're going to somewhere else. So it helps you shop around with that.
00:07:31
Speaker
Everyone's situation is going to be different. You might be looking at doing renovations and this is where different bank valuations may play into things. I've seen some banks value the same property, the same home in the same week by up to $150,000 to $200,000 different. So that can make a difference with your rates and how much equity you might have.
00:07:46
Speaker
You might be considering car loan, heaps
Seeking Mortgage Advice from Experts
00:07:48
Speaker
different things. So if you are looking to review your home loan, if you're looking for any help with all the rate cuts and trying to understand what happens, and how you can make the biggest benefit of it, hit us up at HunterGalloway, we're a home for homeowners across Australia.
00:07:59
Speaker
If you need help with refinancing, just want to get a bit of a sanity check on your current home loan and see if it makes sense to switch or anything else, hit us up. We'd love to help you out at HunterGalloway.com.au. The bottom line is we're currently in a rate cutting cycle. This means it's potentially an opportunity for you, whether it's locking in lower rates, refinancing get away from your current bank, don't like their platform or their situation, or just saving on monthly repayments. Now's the time to act.
00:08:20
Speaker
Don't keep pushing it back, especially if there's a huge difference in your current rate to what's available in the market. Just hit us up. A five-minute phone call can save you years off your mortgage. I definitely suggest reviewing your current cash flow. If you think you can keep your payments on that high one, like I said, it can save you $41,000 depending your loan amount, depending on yeah your rate difference um without having to change anything potentially. Just leave the payments how they were.
00:08:41
Speaker
It's the easiest $41,000 you'll ever save. If your bank's not moving around, you need to really consider refinancing, um especially if it's getting over that sort of 0.25% rate differential, even with the cost. And while there are some banks doing cashbacks, there's not a lot to use a broker to help shop around and see what's possible there.
00:08:57
Speaker
And try and stay proactive. At Hunter Galloway, we help our clients. We do a review every 12 months, sometimes more frequently. so if your broker's not doing that, give us a call. We'd love to help out. HunterGalloway.com.au. And until next time, see you later.