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.
It’s one of the first questions that most borrowers ask me when we’re shopping around for a home loan:
“What’s the cheapest interest rate you can get for me?”
I totally understand the question – the interest rate you pay is going to determine how much your repayments cost you each month. It’s a very important part of the equation!
But sometimes, getting too fixated on the interest rate on offer can be like a game of “smokes and mirrors”.
Yes, you get the cheap rate – but at what cost?
In certain circumstances, going for the loan with the cut-price interest rate can cost more money in the long run.
Here are 3 ways a low-rate loan can deceive you:
When it’s a honeymoon rate
Many banks and lenders can fall into the habit of offering a better deal to new customers than to their existing home loan clients.
It is what’s known as a honeymoon rate and it can be quite deeply discounted compared to other loans on offer.
However, these types of deals usually only last for 12 months – 2 years at the most.
Once the honeymoon rate ends, you’re back on their standard variable rate, which could be even higher than other loans on the market.
Yes, you’ve enjoyed a good discount for the first year of the loan – but what about the next 29 years?
When it is loaded with expensive fees and charges
Sometimes, you get what you pay for.
If you pay for a basic loan, then it will come with basic inclusions. Think of it like Jetstar. Back when we could freely travel, we had the option of booking a Jetstar flight for a low price.
But once you add on $7 for seat selection, $12 for a sandwich and a coffee, $19 to update your carry-on luggage, a package to allow flexible changes and a credit card fee at the end, your fare is suddenly looking quite expensive.
Meanwhile, if you book a flexible fare with a full service carrier like Virgin Australia or Qantas, it might seem more expensive when you compare the initial price – but all of these inclusions come with the ticket price.
The same type of theory applies with home loans.
Let’s say the interest rate on Loan A is 2.7% with a $15 per month account keeping fee. The interest rate on Loan B is 2.8% with a $0 per month account keeping fee.
Depending on the size of your loan, the second option with the higher interest rate could be the less expensive option in the long run.
This is especially the case when you start to make headway with the principal of the loan, and the interest component of your repayment gets smaller and smaller.
When it prevents you from accessing other benefits
Generally the lowest-priced home loans are known as “basic” loans. They come with very few bells and whistles and don’t generally give the borrower access to extra facilities like redraw or offset.
And offset account allows you to “offset” your savings against your mortgage.
If you have $100,000 in savings, for example, and you save that in an offset account against your mortgage, that means you’ll pay no mortgage interest on $100,000 worth of your loan.
Your repayment will stay the same each month (assuming it’s a principal and interest loan) and the money you DON’T spend on interest will be directed towards the principal part of your mortgage – helping you pay the loan off far more quickly.
When you analyse all of the different loans, interest rates and fees and charges on offer, and you compare them against your specific situation, it quickly becomes clear that sometimes, the loan with the cheapest rate isn’t the best deal after all.
Working with experienced mortgage broker can help you by taking into account your income, your expenses and your goals and help you obtain a loan that offers the best deal for your specific situation – so you don’t end up spending more than you need to on your loan repayments. If you’d like a free mortgage health check or you’d like us to check your borrowing power, contact our friendly team today!
New research shows that in many suburbs across Australia, it may actually cost you less money to buy your home and pay a mortgage, rather than renting.
The research, released by Aussie Home Loans in conjunction with CoreLogic, reveals that many Aussies would actually be better off making home loan repayments than paying a landlord.
In fact, more than half of the country would be financially better off if they owned their home!
The Buy vs Rent Report has analysed suburbs across Australia where mortgage repayments are cheaper than rental payments, and it found that over half (52.2 per cent) of Australian suburbs would be cheaper for homeowners than for renters.
The research is based on:
A 30-year loan term
Principal and interest repayments
35% three-year fixed rate loan
But even those who prefer a variable interest rate may be better off.
Based on a variable home loan rate of 3.65%, the report found that 1 in 3 households (or 32.9%) would find it cheaper to pay down a mortgage than pay rent on a house.
These results are hardly surprising, given the fact that mortgages are currently the cheapest they’ve ever been. Interest rates are now at lows we’ve never witnessed – I’ve certainly never seen mortgage interest rates this cheap, and I began working in the industry 30 years ago.
The really interesting part to me is that these interest rates are also quite conservative. Since the last RBA rate cut, it’s now possible for us to find you a fixed-rate home loan with an interest rate beginning with a 1.
Even for those of you who prefer the flexibility of a variable rate loan, there are many rates on the market that are far more competitive that 3.65%.
In any event, this research is good news for you, as it means your dreams and aspirations of buying your first or next home may be closer than you think.
How close are you to buying your home?
For those who are interested in buying a home, there are a few things you need to know.
First of all, the good news: the requirements for saving a deposit for first homebuyers is now far lower than it has been in the past.
While many banks and lenders would prefer to see a 20% deposit, in the major capital cities at least, this is something of an unrealistic target.
The median property price in Sydney has been hovering around the $1m mark in recent years, which means a 20% deposit is worth around $200,000 – a figure that is far outside the average Aussie’s ability to save.
Enter the First Home Loan Deposit Scheme (FHLDS) – a program run by the government, which allows first-time buyers to buy a home with just a 5% deposit, without having to pay lenders mortgage insurance.
As long as you can provide evidence of at least 5% in genuine savings, many banks and lenders will consider your loan application.
Now, what does genuine savings mean? It could be comprised of:
Small, regular deposits from to your savings account
Your tax refund
Compound interest and savings from a term deposit or high-interest savings account
Deposits to your account after selling unwanted goods, like tablets, iPhones or furniture you no longer need.
If saving a 5% deposit isn’t quite achievable – or if you’re not a first-home buyer, so you can’t access the FHLDS – you may be able to buy a home if you’re parents are willing to offer a family guarantee. This essentially means they’re giving the bank some security over their own property, to help you get a loan for your property.
There are a number of other grants, schemes and incentives to help buyers get into the property market, including the First Home Owners Grant (FHOG); Home Builder, which provides owner-occupiers with a grant of $25,000 to build a new home or substantially renovate an existing one; the First home super saver scheme, designed to help you save more money for your deposit; and there are also a number of first-home buyer discounts and concessions off your stamp duty.
These grants and schemes offer the chance to save tens of thousands of dollars off the purchase price of your home – and with interest rates this low, make the prospect of home ownership the most affordable it’s been in years.
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 or needs before making any decisions based on this information.
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.