Homeowners Cutting Home Loan Debt

Families are 1½ years closer to paying off their mortgages as they keep their loan repayments high despite falling interest rates.

As the Reserve Bank decided to leave official rates on hold at 2.75 per cent last week, eight out of 10 borrowers are paying more off their mortgages than needed at some banks.

Australian Bankers’ Association chief executive Steve Munchenberg said home loan borrowers were not trimming their repayments to reflect the lower interest rates.

“Most people are keeping their repayments higher; in effect instead of reducing their repayments they’re reducing the term of their loan,” he said. “They’re on average 1½ years ahead in repayments.”

Over 80 per cent of NAB home loan customers are paying more off their mortgage than required, the executive general manager of the bank’s retail arm, Vicki Carter, said.

“Customers are taking a more conservative and proactive approach to managing their money,” Ms Carter said. “More consumers are taking control of their debt and choosing products that provide certainty, like personal loans, to manage their finances.”

Not only does keeping repayments high help borrowers pay off their mortgage quicker, it also reduces the total interest they will have to pay over the life of their loan.

Mr Munchenberg said that by funnelling the same amount of money into their mortgage regardless of interest rate falls, borrowers were creating a “buffer” so that if they lost their income they could still keep up with their mortgage.

The Reserve Bank said this week that slowing economic growth meant there was potential for further interest rate cuts.

More borrowers are choosing fixed interest loans to lock in the historically low interest rates. One in five new mortgages are now fixed rate loans. The average three year fixed home loan interest rate is 5.25 per cent, according to interest rate comparison service RateCity.

Mr Munchenberg said consumers were being cautious about their debt levels. “There is a degree of consumer uncertainty,” he said. ”The combination of the GFC and [announcements of job cuts] could well be making people want to be on top of their mortgage.”

This conservative borrowing behaviour is also reflected in a survey of RateCity users that found one in four Australians expecting a tax return will use it to pay down debt, while 23 per cent will save any tax they get back.

Meanwhile, with more people paying off their mortgages and prospective borrowers spending more time building up their deposit before entering their housing market, housing credit growth is at its lowest level since the 1970s, growing at just under 5 per cent a year.

Family kicking the mortgage into touch

The record low interest rates have been a great opportunity for Sean and Elizabeth Elvin. They estimate that their mortgage now will be paid off in 11 years – 14 years early.

The family of four lives in Rouse Hill and took on a mortgage of $440,000 2½ years ago. They now owe $290,000. With son Patrick in primary school and daughter Keira soon due to leave childcare Sean is hoping to free up more money for the mortgage.

”It is very important to pay [it] off,” Sean said. ”We don’t like big numbers hanging over our heads.”

The Elvins were paying slightly more off their mortgage even before the interest rates fell. They also opened an offset account. ”Not only has this [offset account] helped us repay the mortgage but it also gave us great flexibility financially,” Sean said.

Elizabeth recently returned to part-time work, which allowed the family to have some further spending freedom.


A free market appraisal takes 15 mins and can give you an updated price for your home or investment.

Simply call 02 49 657299 for your free market appraisal or house valuation today

Global Property have seen a huge rush in buyer enquiry since the middle of June!!

Sale Prices have been quite bullish and we have a positive outlook for the market going forward.

There is high demand for family homes in Newcastle & lake Macquarie.

The interest rate reductions in 2013 are starting to create activity for property investors as well.

Recent Sales in the following suburbs have created demand for more homes to be put on the market.

Warners Bay, Belmont, Eleebana, Valentine, Speers Point, Lakelands, Macquarie Hills, Wallsend, Hamilton

It can be the case that in the cooler months that a lack of homes for sale creates high sale prices.

Now may be the best time to sell your home?

For your free market appraisal call Global Property on 02 49657299 to price your house.



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