Interest that accrues on loans can be downright depressing to look at when you are trying to pay off debt. As I spoke about recently with my post on becoming financially literate, having a large interest debt that I had to repay each month was sucking the life out of our finances and leaving us with very little disposable income to play with.
So recently when my wife and I started to talk about getting another house and taking on more debt so that we could have more room to support the needs of our family, I was initially a little hesitant to get started. Most of my adult life I have been saddled with debt, and so the prospect of voluntarily doing it all over again isn’t something that I am going to race straight into.
The first thing that I did was go and talk to the loans manager at the bank to see exactly how much money I could borrow, and to see if we had to sell our existing house and what the repayments would be. The loans manager was having a bit of a rough day as he had just told a couple that he couldn’t approve them for a loan as they weren’t making enough money to cover the repayments. Anyway we sat down and did the sums on my family situation and he ended up telling me that he would happily give me a little over $900,000 in debt financing.
I was a little taken back at first, there was no way I wanted to be making repayments on that kind of money. Although it was good to know that we could borrow more than enough to finance another house. The other interesting thing that was discussed was interest rates on the loan. As we all know, getting the best interest rates for your loans is a massive part of helping you to reduce your total debt. It doesn’t matter if it is mortgage interest rates, car finance rates or student financing rates – every type of debt will have an interest rate attached to it, and finding the best rate will save you serious cash by the time the loan is paid back in full.
In my case the loans manager was happy to reduce my rate from where it sits now (around 5.5%) down to 4.8%. Now I know many of you that read my site are from the US, and so those interest rates will look insanely high, however, in Australia that is actually a really good interest rate. To give you an idea of how good, that is the difference between paying $849 a week VS $792 a week on a $600K loan – a saving of $57 a week and $73,000 over the life of the loan when you take into account interest repayments.
It was actually really interesting talking to the loans manager as he took into account things like my income, credit history, credit card limits, existing mortgage, any car loans, number of dependents, equity in our existing home, expected rental return on our existing home, cash balances and investments. It really was fairly thorough, although I didn’t mention any online income that I generate as we had enough ability to cover the loan without going into details on that.
The entire thing has made me think that I should have visited the loans team a long time ago, as I have potentially been paying far too much in interest every week, when all I had to do is ask if they could offer me a better rate.
Do you have any debt? Do you negotiate the rates with the lender?