Can you repay your home loan at the “buffer” rate and save
In Australia, households often choose to pay down their mortgage more quickly than required. Various data sources suggest that around half of borrowers are ahead of schedule on their mortgage. In this way, many households have a buffer that they could temporarily draw on to stay current on their loan repayments if their incomes were to fall. Mortgage holders could save hundreds of thousands of dollars in home loan interest if they made repayments at their bank’s “buffer” rate, according to Mortgage Advisers. When a lender determines whether a borrower can afford a loan , they do so by adding an interest rate buffer of around 2% p.a. to the current home loan rate. In other words, if the current interest rate is 5.25% p.a. they will assess the ability to repay the loan at 7.25% p.a. Households have now built up a significant buffer against future interest rate rises, figures from the Bureau of Statistics and Reserve Bank show. A debt reduction strategy simply requires you to make ...