We all love a little online shopping, but when it comes to online interest rate comparisons, these comparison sites often don’t check the ingredients before delivering the results.
And it really is all about the ingredients when it comes to finding the lowest interest rate - character, capacity, collateral, loan structure and strategy.
- Character – a borrower’s credit rating, history and employment status
- Capacity – a borrower’s income and ability to repay the loan, taking into account living expenses, dependents and existing debt like credit cards and personal loans
- Collateral – a borrower’s savings/deposit and the property the loan will be leveraged against
- Loan structure – whether it is principal and interest or interest only, variable or fixed
- Strategy – if the property is to live in or an investment, or to build/renovate and sell
Interest rate comparisons aren't the lowest interest rates
In reality, most banks have a home loan interest rate available starting in the high 3’s, but whether you qualify for that low interest rate depends on a lot of things.
Home loan interest rates are dependent on your risk level as a borrower. Certain borrowing situations are considered lower risk than others and the higher the risk, the higher the interest rate you’ll pay.
Below is an example of how the purpose and loan structure can affect interest rates. Interest rates are based on a loan amount of $880,000 and are indicative only.
Owner occupied home loan interest rates
Investment property loan interest rates
SMSF Limited Recourse Borrowing interest rates
How to get the lowest interest rate
The banks classification of higher risk lends has changed over the last 6 months. Years ago, there was less concern on interest-only home loans and interest rates were much more comparable to principal and interest. Now, The Australian Prudential Regulation Authority (APRA) has placed restrictions on lenders offering too many home loans with interest only repayments. Here are some tips to help reduce your interest rate;
- Try to save as big a deposit as possible. Interest rates are much lower if you’re borrowing less and drop significantly if borrowing 80% or less.
- Budget for principal and interest repayments. Interest-only loans have higher interest rates.
- If your strategy allows it, fix your interest rate. There are a lot of bank promotions offering lower rates if you choose to fix for 1 or 2 years.
How to get a home loan interest rate discount
Here’s the biggest secret that home loan comparison websites don’t tell you. There are discounts available on the advertised interest rates, however, it all depends on who is asking. Not everyone can get an interest rate discount, they have to be requested, best done through a mortgage broker.
A mortgage broker like Mint Equity will negotiate on the client’s behalf to secure a discount. There are a variety of different techniques used in the negotiation process including competitive pricing, the client’s borrowing capacity, loan amount or lender ‘under the table’ promotions which are only available via the mortgage broker channel.
This is where a comparison website isn’t helpful (or accurate) as one lender may appear to be the cheapest, but after a discount has been applied, another may be more favourable.