Mortgage rates are now the lowest they have been in decades – most people are aware of this! We have never seen them this low in my 30+ year career in the finance industry.
With the interest rates this cheap, it is possible to borrow more than you have been eligible for in the past. But why does this matter? Well… it means that you may be able to afford a bigger home or you may be able to leverage your money further for an investment property to grow wealth for your future.
This is how it works…
Borrow to maximise your financial position
When applying for a mortgage or looking to refinance your existing mortgage, most borrowers look for the cheapest interest rate, but this should not be the only factor to consider.
The other thing to consider is the loan amount. It is important to consider the total balance of borrowing they can achieve and this could help them reach their goals. I always suggest that my clients do not just focus on the interest rate when comparing various loans.
So, the question that borrowers should ask is – should we seek to apply for the maximum amount that we can borrow in the current property market so to take advantage of the low interest rates? And the answer to this question depends on the personal situation.
Here are some risks and rewards of this strategy…
The reward – if you leverage your money well to get into the market, then over time, you are likely to enjoy property price growth. If you own your home and have one or two investment properties, this could put you in a great position to create wealth for the future. The way house prices have increase, you SHOULD make money, but there are no guarantees.
The risk – is evident if you don’t have a lot of money to play with as a deposit. If you borrow 90-95% in the current market and the market cools down, you could end up with negative equity (where the house is worth less than your mortgage). Therefore, it is generally advised to buy property as a longer-term strategy to give you “time in the market”.
What is your end goal?
When working out how much to borrow and setting up the right loan structure, the most important thing to remember is your end goal. Is it getting the cheapest possible interest rate or accessing equity to renovate or investing in property to work towards future wealth?
Everyone has different needs, and there are risks and rewards of each strategy, and by working with a mortgage broker, you can talk through the benefits and drawbacks of different scenarios, to ensure you make the best decision to suit you.
The number of borrowers has increased immensely as they take advantage of the current lending conditions, and in turn are shopping around more and reviewing their mortgages more often. It is also a lot easier to switch lenders than before, which is boosting activity and we are finding that cash back offers are very appealing too. We have had clients use the cash back to pay off their credit card debt or use it to offset their mortgage from day one. Cash back offers up to $4,000 are available, so get in touch if you are interested and we can look into your eligibility.
If you are thinking of refinancing, are looking for a new loan or just want to see what the current market has on offer, contact us for an obligation-free chat, so we can see if we can save you money with a better deal on your mortgage.
When you’re applying for a new home loan or refinancing your existing mortgage, it makes sense to look for the cheapest possible interest rate.
But looking for the cheapest loan is not always the best strategy.
You must be thinking I’m crazy for suggesting that sometimes, you should pay a higher interest rate – but hear me out!
In my experience as a mortgage broker, I’ve learnt that far too many borrowers focus purely on the interest rate when comparing loans. They do this, rather than focusing on the total balance of borrowing they can achieve.
When does it pay to pay more?
There are some situations when it makes more sense for homebuyers and property investors to opt for the loan that suits them best, rather than the loan that costs the least.
For instance, let’s say you’re refinancing. You’ve had your home loan for five years, and the value has grown from $700,000 when you bought it to $800,000 now. Your loan balance is around $560,000.
You could go with Lender A – their 2-year fixed home loan rate is very low at 2.09%. But they’re only prepared to lender to 75% of the property’s current value, which is $600,000. You can refinance and access $40,000 equity.
The problem? The purpose of refinancing is so you can renovate the kitchen and add a pool. That’s going to cost way more than $40,000.
Fortunately, you have the option of going with Lender B. Their interest rate is higher at 2.35%, but they’re willing to lender you 80% of the property’s value, which is $640,000.
This gives you access to the full $80,000 you need to renovate the kitchen and install a pool, with some money left over to recarpet the bedrooms.
Yes, you are paying a slightly higher interest rate, but in return you’re able to achieve your goals. In this instance, the renovation could potentially add far more value to the home than it cost, which will far outweigh the small amount of extra money spent on interest anyway.
Keep you eye on the end goal
When working out how much to borrow and setting up the right loan structure, the most important thing to consider is your end goal.
That might be getting the cheapest possible interest rate.
Or, it could be refinancing to get the most equity out, so you can use those funds on a renovation or to purchase an investment property.
Or, it might be borrowing the absolute maximum amount you can borrow, so you can leverage that money further as an investor.
Or, it could even be locking in a super-low fixed interest rate, so you have peace of mind that your repayments will be low for the next few years?
Everyone’s needs are different, which is why the right lending solution for you is so personal. There are risks and rewards of each strategy, and by working with a mortgage broker, you can talk through the benefits and drawbacks of each different scenario, so you can make the best decision to suit you.
We’re seeing many borrowers take advantage of current lending conditions; with interest rates this low, there’s never been a better time to compare your loan and make sure you’re getting the best possible deal.
In recent weeks we’ve started to see some lenders increase their fixed rate loans, which indicates they might have reached their floor. If you’re considering refinancing to a fixed-rate home loan, give us a ring for a chat, so you can see if you can save yourself some money with a better deal on your mortgage.
This article contains information that is general in nature. It does not take into account the objectives, financial situation or needs of any particular person. You need to consider your financial situation and needs before making any decisions based on this information.
Everyone has been talking about mortgages for the last 12 months – ever since COVID-19 arrived, the topic of home loans has been constantly in the air.
From mortgage holidays to interest rates falling to record lows, it’s been a huge year for the finance industry.
It’s also been a huge year for you as a borrower, which is why my question for you is: when was the last time you checked your home loan interest rate?
If you haven’t taken a look at your home loan since 2019, then there’s a really good chance you’re paying too much for your mortgage.
This is because rates have fallen and banks and lenders are being more competitive than ever to try and get your business.
There are some big differences between packaged variable versus basic variable interest rates at the moment – and if you make the switch, you stand to save a lot of money.
What are the best home loan deals on the market today?
The answer to this question quite literally changes daily, but at the time of writing we are able to secure fixed home loans for our clients with an interest rate as low as 1.99%, and variable rates are also very low.
When I talk about packaged variableloans versus basic variable interest rate loans, you might not think there’s much of a difference.
The two loan products do sound very similar, but they’re actually really different.
A basic loan is just that – it’s a loan with no bells and whistles. You can’t save money in an offset account to reduce the amount of interest you pay. You can’t redraw money from your loan, if you make extra payments.
A packaged variable loan comes at a cost, usually around $400. But for that fee, you get:
A discount on your interest rate, which can be worth up to 0.9% on a variable rate loan.
Features like offset, which can save you a lot on interest if you have a decent amount of savings.
Fee-free credit cards – some of our clients take out frequent flyer or rewards cards that have high annual fees. These fees are basically cancelled out by the package fee.
Banks are very competitive right now, with many of them even offering big cashback incentives to get your business.
We have lenders on our books who are offering between $2,000 and $4,000 as a bonus for you, if you refinance your loan with them.
Every bank has a different policy and loan criteria, which is where we can help. If you are thinking of refinancing and want to take advantage of lower interest rates or a great cash back offer, contact us today and we’ll see how we can help you get into a new loan that saves you money.
Comparison Rate calculated on a secured loan amount of $150,000 for a term of 25 years. WARNING: This Comparison Rate is true only for the example given and may not include all fees and charges. Different terms, fees and other loan amounts might result in a different Comparison Rate. Fees and Charges Apply. Terms and Conditions are available on request.