What's The Best Rate?

May 29, 2016
Ashley Simmons

Tell someone you’re in the home loan industry at a social function and naturally the first question that comes your way is “so . . . . . what’s the best interest rate”? And why wouldn’t this be the case!

With so much focus on whether the Reserve Bank will change the cash rate every time they meet, and with so much advertising about interest rates directly by the banks themselves, well it just makes sense that rate must be the most important thing doesn’t it? 

Well, what if I said not necessarily.

 

Imagine the lender with sharpest rate doesn’t provide the structure that you’re after. Or perhaps their base rate is fantastic, but their comparison rate isn’t anywhere near as good. What if the lender with the lowest rate was one you’d never heard of? Or maybe your situation doesn’t fit within every lender’s policies? Suddenly there’s a lot more to think about than just a great rate.

So let’s look at some of the other considerations.

 

Loan Structure

Before you head straight for rate, think about your current circumstances as well as future plans. You may want to set up your loan with Interest Only repayments, before switching to Principle & Interest. Maybe you want to hedge your bets and fix part of your loan, while leaving the remainder as variable depending on your risk appetite. What if you need an offset account?

Tip #1: Get your loan structure right first.

 

Your Circumstances V Lender Policies

So imagine your partner is about to commence maternity leave. Or perhaps you’re self-employed in a relatively new business. What about if you’ve found the place you want to buy now, but haven’t yet sold your own place? Would rate be the first thing that comes to mind?

Tip #2: Not every lender’s policies will suit your personal circumstances

 

Base Rate V Comparison Rate

Now let’s focus on rate! But what does rate mean to you? Next time you see one of the banks advertising on TV, see if you notice that expression “Comparison Rate”. Many lenders advertise a very low “base rate”, however show a higher comparison rate. The comparison rate is the lender’s base interest rate including fees and charges, such as application fees, settlement fees, annual package fees etc. 

Tip #3: Comparing rates is not necessarily comparing apples with apples

 

So next time you weigh into a conversation about the property market, home loans, banks and interest rates, remember that rate isn’t everything!

 

For more information or to discuss your circumstances, give me a call on 0417 163 814 or contact me at ash.simmons@mortgagechoice.com.au

Posted in: Interest rates

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