Are you in the market for the cheapest home loan rates? If you are, you’re sure to find the tips shared in this blog post very useful. Read on to know more.
3 Things to Know If You’re Looking for the Cheapest Home Loan Rates
People typically look to big banks when shopping for the cheapest home loan rates. However, it was recently revealed that Australia’s big four banks are actually making it tougher and more expensive for Australians to find the lowest home loan rates.
In fact, the Australian Competition and Consumer Commission’s Home Loan Price Inquiry interim report for March 2020 states that customers of the big four bank with loans that are above 5 years old pay 40 basis points (0.4%) more, on average, than what their customers with new loans are paying.
So, if you’re in the market for the cheapest home loan rates, know that there are different types of home loan products to choose from. There are those that offer flexibility or allow you to pay off your loan faster and ones that could end up costing you more, no matter how great they seem.
So, to ensure you get the most appropriate home loan rate for your situation, make sure you know about these:
1. Lowest interest rates
Finding a home loan product with the lowest interest rates is one of the simplest ways to save on your loan. To help you in your home loan comparison, familiarise yourself with the following:
- Variable and fixed rates: A variable rate home loan changes or adjusts according to market fluctuations, so there’s some risk exposure although it usually has lower rates and is more flexible. A fixed rate home loan, meanwhile, has the same interest rate throughout its term. Some homeowners who value predictability prefer this type of home loan, as it can also protect them from rising interest rates.
- Current cashback offers: Some lenders will, from time to time, offer a cashback offer as an incentive to move your lending to them, with some caveats. Be aware that while these can look appealing, you should consider the product and lender, as well as the reasoning behind the offer.
- Non-bank lenders: Loans and other credit products from non-bank lenders can sometimes have lower rates. However, before you decide to apply, make sure you ask questions and read the fine print to ensure clarity in the process and transaction with your broker.
Note that going for the offer with the cheapest rate on the surface may not necessarily be the best option in the long term as there are other variables to consider. This is why it’s important to approach different lenders, ask questions and negotiate.
2. Low fees
Many home loans come with fees and charges that aren’t part of the interest rate and your repayments, although these are calculated with the comparison rate of the loan.
Home loan comparison rates are calculated typically on a loan balance of $150,000 over 25 years — so as your loan size increases, the fees you have to pay will have less of an overall impact compared to your actual interest rate. This is important to remember when comparing loans.
Some fees can be expensive but also necessary, such as the establishment or application fee, ongoing fees, early exit fees, discharge fees, lender’s mortgage insurance, etc. Make sure you crunch the numbers or work with a mortgage broker to get the numbers right, so that your lending is suited for now and into the future, with all costs considered.
3. Repayment structure
Study the proposed repayment structure as this may have a significant impact on the total cost of your loan. Principal-and-interest loans typically result in higher monthly repayments, although these can turn out to be cheaper in the long term. Interest-only loans, meanwhile, initially require much lower repayments during the interest-only period. However, you can expect to pay higher repayments afterward, meaning these can end up costing you more over time.
You also need to consider the loan period, as paying off your home loan quickly can mean paying less in interest over time. So, whatever the loan amount, expect a significant difference in terms of savings between a typical 25-year home loan and one with a 30-year tenure.
Find the cheapest home loan rates with a specialist
If you need help with identifying or negotiating the cheapest home loan rates in the market, please reach out to us at Lend Perspective. We have experienced mortgage brokers who can advise you on the most appropriate home loan products available.