Interest surprise in your interest?

GomerSurprise “Surprise, surprise, surprise” was the favourite catch cry from a well loved television character Gomer Pyle from a few years ago, well quite a few years ago…… now that’s showing my age! Glen Stevens certainly sounds like Gomer on this occasion, and the phrase “Interest surprise” is totally appropriate when nine out of ten economic analysts got the prediction wrong. Now that reminds me of a joke about how many light bulbs and economists…… I’m sure we can all think of one. Dr Shane Oliver was the only one of our economic chieftains that got it right, he took the ten to one shot.

Well what was the effect?

We could talk all day about the dollar going down, the supermarket prices going up, the share market going up, yet I won’t, because there is something I wish to covey to the reader. Now, if you are already have a fully fixed rate home loan, then this may not apply to your situation as you have already agreed to pay a fixed amount of interest, for the term of the fixed rate period.  Some things that you should know, if you are holding a current variable mortgage.

Whats in your interest?

The interest is whats in your interest! With a variable rate loan the corresponding repayments will also decrease, when your lender passes this reduction on. By the way, the banks are all aligning the stars for the 20th of February to pass the cut on, I wonder what’s so significant about this date ? Who knows, just coincidence or a true astrological event ?

Is it in your interest?

I suggest that you contact your lender and tell them that you want your repayment set back to the former, higher amount, this shouldn’t be a problem if you are have already adjusted your lifestyle to the former amount, so why change it? If you are already paying a higher amount above the required minimum repayment, then all praise to you

It is in your interest to do this. It is in the banks interest for you to continue with the lower repayment amount, because, more surprises, they will collect more interest on your outstanding balance. By increasing your repayments to the former repayment amount, you will be repaying more of the capital amount, and in fact, decreasing how long it will take to pay off that loan, in other words the term of your loan will reduce.

Matthew McDermott

Principal Australian Home Loan Brokers