Freedom beckons

Getting the best mortgage deal can transform your life – but there’s a trick to it

- NICOLE PEDERSEN-McKINNON

A home loan can be a virtually watertight mechanism to grow your wealth – or, like a leaky bucket, leave much of your hard-earned money trickling into the lender’s profit pool. And an uncompetitive interest rate is often the main cause of the holes.

Let’s say you have two loan options: one from a big bank and another from a smaller or lesser-known lender. The big bank’s rate will quite often be a full 1% higher than the average charged by the rest of the market – even if you’ve managed to secure its top discount. The smaller, more streamlined outfits are where you find many of the home loan bargains – so much so that they always dominate the 10 cheapest mortgages list.

But 1% is not much, you may say.

It is when you apply it to a number as big as a home loan. In fact, on a $400,000 mortgage, for example, the difference is the ultimate $68,000 in interest. In other words, it’s pretty much an average annual wage that you’re letting flow out of your pocket and straight into the bank’s coffers.

“But I can’t be bothered switching,” I hear your follow-up.

Then you need to realize you could probably save way more than I suggest – for free. All you need to do is apply the “up-stumps-but-still-stump-up” strategy: move to the sharper rate but don’t “move” the repayment.

That would see the average mortgage holder pocket an extra $40,000 to push the total saving from no extra repayments to more than $100,000– not the usual circa $300,000 of interest, but less than $200,000. It’s also on the My Mortgage Freedom Date app that accompanies my book. It automatically, very deliberately keeps repayments the same if you get a better deal. The strategy takes your free interest saving stratospheric. This works just as well if rates fall.