The home financing health check you need to thrive this winter

Following the Reserve Bank of Australia's latest rate cut, many mortgage holders are now benefiting from a lower variable rate.

With another rate cut likely just around the corner, Sydney-based Mortgage Choice broker Leanne Johnstone says taking stock of your home loan should be a priority.

“Even if you organised a home loan, for example, only two years ago, five years ago, ten years ago, that interest rate that was negotiated at that point in time, often lenders may have something better which is on offer now."

The steps to take when your fixed interest rate period ends

Many mortgage holders are now starting to ‘roll out of fixed rates’, and that marks an ideal time to check the new ‘roll to rate’ is competitive, as with many lenders the ‘rolled to rate’ was not, Ms Johnstone says.

“What also happens is that I've got lots of clients that may have a portion of their loan which is variable, and another which is fixed, and they just immediately assume that the ‘roll to rate’ when it comes out of fixed is going to the same as the variable," she adds.

 “I'd probably say that with 80% of lenders that's not the case, the ‘roll to a variable rate’ is at a higher rate than what their other variable rate is.”

'Myths about fixed rate homeloans': youtube.com/mortgagechoice

In such instances, Ms Johnstone said enlisting the services of a broker to negotiate a better deal with their current lender by highlighting the better rate offered by a competitor, was an easy health check task.

“There's normally no application that goes in, it's literally just saying that, ‘can you do better an interest rate for this particular client?’” she says.

“And then potentially showing that lender some better rates that they might be able to get with another lender, and then the lender could then just reduce the interest rate straight away.”

Is it a good time to fix your interest rate?

When it comes to fixing your interest rate, University of Adelaide master of property Peter Koulizos says mortgage holders should hold off as winter begins.

 “Because there are more cuts coming, certainly I wouldn't be fixing my loan,” he says.

It may be too early for a fixed loan if you are looking to take advantage of rate cuts to come. Picture: Getty

“By all means shop around, but I wouldn't be actually shifting it until closer to the end of the year when the majority of interest rate cuts have happened, and then once all the dust settles, then homeowners can look for a long term lender that they'd like to stay with.”

What is a good variable interest rate in the current market?

Mr Koulizos said a variable rate in the ‘low 6%’ or lower is a good ballpark of a current competitive rate.

 “If you don't ask, you don't get,” he says.

“More and more I hear stories of people just picking up the phone and asking if their bank can do a better deal, and nine times out of 10, they do.”

Competitive owner occupier variable rates presently on offer were as low as 5.77%, Ms Johnstone adds.

“You should be speaking to your broker or bank if your owner occupier loan has a six in front of it,” she said.

'Myths about variable home loans': youtube.com/mortgagechoice

“For most investment loans, they would typically be in the low sixes”.

The value of an offset account

With the benefit of an offset account potentially cutting years off your home loan by reducing the amount of interest you pay, your winter home loan health check this year should always explore the possibility of adding an offset.

Mr Koulizos likened an offset account to the “eighth wonder of the world.”

“Some lenders don't offer it," he warned. "Some lenders only offer it depending on what your loan to value ratio is."

“So when you when you ring them up to ask them about what's the best deal they can do, also ask them about the possibility of an offset account.”

Ms Johnstone adds any additional funds in a savings account could be reducing your home loan interest by moving them into an offset with that same lender.

Lower variable rates – now what?

For those mortgage holders who now have a long awaited lower variable rate, the advice is to keep your repayments the same if possible.

“If you can keep repayments where you were, then that's just going to build up the availability of extra funds in your loan anyway, and if you need to, you can always access them in future,” Ms Johnstone says.

“It's always nice to have to have that pool of money and you can actually see it.

“For a variable rate loan…. if your current loan balance is, for example, $500,000, and if you’re making an extra $500 a month into loan payments, then at the end of the year, that's going to say that you've got available funds of $6000, which is nice.”

'How interest rate cuts affect the property market': youtube.com/mortgagechoice

What lies ahead for further rate cuts in 2025?

With more than 23 years in the home finance industry, Ms Johnstone said a good indicator of potential reductions in interest rates was lenders decreasing their fixed interest rates.

“There are many fixed rates now that are actually lower than the variable rates,” she tells Mortgage Choice.

“That's not to say people should fix their loan but it probably is an indicator that the gurus at the banks - which do have specialists analyse this all the time - that banks believe there will be some decreases that will occur.

“So I'd love to think that that was certainly the case.”