The interest rates of mortgages are never far from the headlines, as this is the largest purchase that will ever be made be most people. Changes to interest are likely to have a large effect on your finances if you are investing in real estate or considering doing so.
The Reserve Bank of Australia cut the official interest rate several times this year, but National Australia Bank (NAB) was the first major bank to say it could rise next year. NAB’s business confidence index recently posted its largest jump for 10 months. While painful for people currently or potentially repaying a mortgage, rising interest rates would at least indicate that the global economy is mending itself: interest rates are cut to stimulate the economy.
The housing market of Australia is improving, and some business leaders have even warned of a bubble. Real estate investments in Melbourne in particular have done well, with median house prices rocketing by 27 percent in the 12 months to October. Melbourne’s fortunes have turned around – last month, the online magazine Your Mortgage ran the headline “Melbourne house prices surge to 15-year high” while in July, The Age said the city’s property market was dire.
There are four million mortgage holders in Australia. In May Tim McIntyre, the editor of Your Mortgage, set out to discover which interest rate was the best on the market. The winner was the State Custodians Standard Variable Offset Loan. This outfit is so cheap because it’s small, based online so not encumbered by bricks and mortar, and spends little on advertising. Is everything not done over the internet these days?
If you’re uncomfortable soliciting a mortgage by phone or online, sticking with the major players would cost more, although some offer good deals. McIntyre found the best major bank to be the NAB.
There are ways to cut your mortgage payments. The first is to make fortnightly rather than monthly payments, as recommended by Kristy Sheppard, a spokesperson for Mortgage Choice. With monthly payments of $2,000, you will have repaid $24,000 by the end of the year, while fortnightly payments of $1,000 will repay $26,000. It’s a fairly painless way to improve the situation.
Another is to round up your repayment amount even by a small degree, which will make a significant dent in your interest bill in a way which is again barely noticeable. You should also review your mortgage to ensure that you need every feature for which you pay a premium. You could even switch lenders.
It is possible that better mortgages might become available from Japan, which has some of the strongest banks in the world. These are looking for opportunities overseas in the face of the anemic growth of the Japanese economy. Two of the three largest banks in Japan are considering entering Australia’s $850bn residential mortgage market. Mortgages would be sold online, which has been shown to be cheaper.
It is possible to avoid the issue of interest altogether. Strict Christians call it usury and shy away from it, while it is explicitly forbidden in Islam, where it is termed ‘riba’. There were more than 340,000 Muslims in Australia in 2006, and the number is growing. The Islamic method is to charge rent until a property is fully-owned, which is organised by the Muslim Community Cooperative of Australia.