Article by Patrick Lynch, Head of Operations at Long Property
Here’s a simple question – what’s your home or investment loan interest rate? Simple answer – generally, whatever the Lender wants it to be. Recently, the ACCC Residential Mortgage Price Inquiry reported that ‘the opaque, discretionary pricing of residential mortgages by Banks makes it difficult and time consuming for Borrowers to shop around and stifles price competition’.
So what’s in a Loan Interest Rate? Well, it depends. Are you:
• On a home or investment loan
• On a variable or fixed rate
• On principal and interest or interest only repayments
• With a Big 4 Bank, non-major Bank or non-Bank Lender
• On a ‘package’ or not
• On a deal negotiated direct or via a Broker?
See how many variables there are, and we haven’t even got into comparison rates and fees. This confused pricing isn’t an accident; as the ACCC surmises, it is a deliberate ploy to confuse the consumer and make it harder to find the best deal without spending significant time and effect investigating.
And if you were to investigate, where would you start…? The standard variable rates, for principal and interest home loan with a maximum loan to value ratio of 80%, were c 5.36% to 5.38% for the Big 4 Banks (ANZ, CBA, NAB and Westpac) at 03/03/2019. Not much variance in a supposed competitive market. There may be package discounts available of c 0.70%, where you pay an annual fee but benefit from a lower rate, lower or no application or account fees, credit card or insurance deals, etc. But even then, are you happy paying c 4.66% for your simple home loan, potentially up to 1% higher than the best-in-market?
Well the Big Banks can offer further discretions – did you know about these? The Banks are in business to make money, so aren’t necessarily going to tell you what’s best if you go direct. These discretions depend on factors such as how much lending you have (more lending = better discount). The Banks can also discriminate depending on whether or not you are a new-to-Bank customer – new customers can get better rates plus incentives like refinance rebates. A Lender’s retention team may call and suddenly find you a better deal once they become aware you might leave – your broker can negotiate both before and after a mortgage has been established.
For the other variables above, generally interest only loans are more expensive than loans with principal and interest repayments, and investment loans more expensive than home loans – it is about pricing for risk.
So, what’s a good rate and how do you ensure you are getting the best deal?
A good broker knows the ins and outs of the residential lending market. Brokers have access not only to the Big 4 Banks but also to the more transparent offers often available from second-tier banks (e.g. ING Direct, Citibank) or non-Bank Lenders (e.g. Resimac, Connective Home Loans).
A good variable home loan rate, for principal and interest loans with loan to value no greater than 80%, might sit around 3.69% to 3.85%. But remember, rate isn’t the be all and end all. For one, you might not be eligible for the lowest rate, based on loan to value ratio or Lender policy. The best rate might have additional costs like application, settlement or valuation fees, Lender legal costs, or exit expenses when you repay the loan (refinance or sale). There may be features important to you that aren’t available with the lowest rate Lender, such as offset accounts or redraw access, branch network, internet banking, etc. Finally, don’t just pick for now – find the Lender that will work best with your ongoing wealth strategy.
But if you must think rate, let a Broker do the leg work for you – they’ll know who’s offering what, saving you time, effort and MONEY.
CALL TO ARMS:
Potential reforms are currently being discussed, which, if enacted, could make the Mortgage Broker channel unsustainable – potentially forcing customers back to the Big Banks and cutting their access to smaller Lenders and credit. Support your Broker – sign this petition and share your positive Broker experiences (especially Long Property) with friends, family, colleagues and acquaintances.
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Long Property blog content provides general information only and has been prepared without taking into account your objectives, financial situation or needs. We recommend that you consider whether it is appropriate for your circumstances and your full financial situation will need to be reviewed prior to acceptance of any offer or product. Nothing on the Long Property website constitutes legal, tax or financial advice and you should always seek professional advice in relation to your individual circumstances.
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