Interest Rates – which rate are you on?

Over recent months we have been keeping you up to date with all the changes in home loan rates and specifically how the banks have been segregating these rates across the different types of home loan products (as well as increasing these rates independently of any RBA cash rate movements).

Where rates stand today

As we stand today, we now have a dynamic whereby all of the major banks effectively have four different home loan rates:

• owner occupied with principal and interest repayments,
• owner occupied with interest only repayments,
• investment purpose with principal and interest repayments and
• investment purpose with interest only repayments.

The largest gap in rates is between owner occupied with principal and interest and investment purpose with interest only. This gap is on average 0.66% – quite extreme when you think that less than a year ago there was no difference at all – all of the bank’s rates were the same, irrespective of purpose and repayment structure. Most importantly these changes have been made across all existing loans and new loans. It affects all borrowers.

Awareness is key

So, what does this mean for you? Firstly awareness is key as this affects everyone, are you aware of how your rate has changed and secondly are you still on the most appropriate structure for your objectives. To help you assess if you should be making any changes, some useful questions could be:

• On my owner occupied home loan – should I be making principal and interest repayments or do I still need to utilise an interest only facility, there is now a real interest rate saving.
• If I only have an investment home loan, is an interest only repayment structure still the most appropriate structure? Is any negative gearing benefit justified through the additional interest cost?
• If you have been accumulating funds in an offset account and making interest only repayments on your loan – is this still the best strategy?

These changes are requiring borrowers to be far more specific with their choice of interest rate structure. For some of you, you won’t need to make any changes, however for others this may well be the news you need to re-evaluate with the view to making some strategic changes. As always, Gareth, Paul and Murray at LogiX Financial are here to help you navigate through these changes and provide guidance and assistance regarding your specific situation.