02 Aug 2019

A low interest rate is everything – or is it?

Everybody knows that when you are shopping for a home loan what it all really comes down to is the rate. Right?

Well, not necessarily, and here are some reasons why.

It’s all about bank policy

We can’t begin to tell you the amount of times a client has indignantly informed us their third cousin Larry just got a home loan with another lender that is way cheaper than one we presented.

We don’t doubt that may have been the case but perhaps Larry’s scenario was different.

The reality is it’s not a one size fits all case when it comes to home loans. Your loan to value ratio, the size of your loan portfolio, the postcode where you purchase, your credit history, and many other things all come into play when determining what lender will even consider you loan.

Everyone’s situation is unique, their lending requirements are specific and what a lender’s policy is on any given day will determine what kind of rate can be secured.

The Comparison Rate says it all

A bank will have an advertised rate and it may look seductive on the surface but don’t forget to check the fine print by way of the Comparison Rate.

Comparison Rates are published to consider all fees and charges associated with a loan to arrive at a “real” interest rate.

If a rate looks seductively low, it’s important to look at the Comparison Rate to make sure the numbers really do stack up. Don’t get caught out by hidden fees.

 Broker pricing discretion

One of the many advantages of using a mortgage broker is they have leverage with most lenders to negotiate a more attractive deal on your behalf.

For instance, a bank may have an advertised rate that you would get if you walked into their branch, but a mortgage broker can often approach the same bank and request a pricing discretion and obtain and even cheaper rate than what is advertised.

Like many things in life, with interest rates it doesn’t always pay to take things at face value.

Product suitability

A home loan interest rate is attached to a certain product which has its own unique set of features.

When choosing a home loan, it’s imperative to identify first and foremost what it is you need from a loan facility.

Do you want to have an offset account, be able to access redraw or do you plan on paying out the loan in the short term? All these considerations plus many more must be considered otherwise you may stand to select the wrong product.

For example, there are currently many fixed rate loans on the market that are at an all-time low. But many fixed rate loans lack the flexibility of making extra repayments, the use of full offset and the ability to pay out the facility early without penalty. An extremely low rate would be neither here nor there if you required all these features.

Look at the bigger picture

So, you’ve seen more competitive interest rates advertised than yours and it seems that everyone you know are paying far less on their mortgage. Don’t worry – a cheap interest rate is only one weapon to have in your financial arsenal.

Managing your finances in a savvy way will help you save money in the long term and pay off your mortgage faster. Using strategies like having your offset account work to its optimum, making extra repayments or higher than the minimum repayment, opting for weekly or fortnightly repayments over monthly and reviewing your loan regularly with your broker are just a few ways to save.

Just because someone has a low rate it doesn’t make their money management smarter.

Don’t get us wrong, we are all about the low rate and love getting our clients a great deal but it’s not going to be able to happen on every occasion.

What is advertised in the market may not be suitable or just not viable. Either way we will get you what’s right for you – that’s what interests us.

 

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