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WA pays off home loans quicker

THE average time it takes to pay off a home loan in WA is now ten years less than it was than a decade ago, according to Residential Mortgage Services managing director, John Bignell.

“While homeowners are still taking out the standard twenty-five year loan, they are now, on average, paying it back within five years,” Mr Bignell said.

“In 1990, the average home loan was repaid in about fifteen years,” he said.

Mr Bignell said there were a number of reasons why people were paying off their home loans at a faster rate compared to a decade ago.

“Firstly, interest rates increased sharply during the late 1980s to more than 17 per cent.

“They dropped during the 1990s but home owners were conditioned to paying their home loans at the higher rates and continued to do so even when interest rates fell.

“Secondly, there has been a widespread introduction of new home loans which enable homeowners to pay off their loans at a much faster rate.

“Offset accounts, in particular, are now very popular with home owners who combine their total financial arrangements through a single account to reduce their mortgage at a much faster rate.

“Finally, home owners are now a lot more educated about home loans than they were ten years ago through new television and radio programs related to home finance as well as magazine and newspaper articles on the issue.

“Home owners realise there are significant savings if they pay off their home loans at a faster rate and that is what many are now opting to do.

“There is also a wider choice of home loans and home loan providers so the new home loan market is much more competitive.

“As a result, new home borrowers are seeking independent advice from new home loan professionals such as mortgage originators to assist them in choosing the home loan best suited to their financial circumstances.”

While consumers are gaining through paying off their loans quicker, banks and other mortgage providers are losing out on interest repayments.

Yet Mr Bignell believes the industry is accepting the change and the reduced margins associated with it.

Margins are now on average about 1.5 per cent whereas, before the advent of competition, banks had margins closer to 5 per cent.

Mr Bignell said increased competition originating from non-bank financial institutions was changing the way loans were administered.

Gone are the days when people were penalised for paying off their loans too quickly, he said.

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