This seems a simple question but the changing face of Australia’s financial institutions means that the answer is a very qualified, ‘It depends!’
We all know that the Reserve Bank makes their official interest rate announcement on the first Tuesday of each month. We used to be able to work out whether our home loan interest rate would go up or down based on this announcement but financial institutions over the last few years have been moving home loan interest rates (up or down) according their own reading of the market.
The Australian Prudential Regulation Authority – a government regulatory authority - are currently working with financial institutions to correct the balance of owner occupied home loans and investment home loans held by each institution. This has meant a change in the way home loans are viewed. Investment home loans are now attracting a slightly higher interest rate. Financial institutions are also being told to reduce the number of interest only loans and hence they are raising interest rates on these loans as well. Interest only loans are usually investment loans where repayment of the principal is delayed and it is assumed that the value of the property will go up over time.
So what IS the best interest rate at the moment?
If the loan is for an owner occupied home and you have a 20% deposit, interest rates as low as 3.79% are available. This rate may change tomorrow! If you need to borrow more that 80% of the cost of the home plus fees, the interest rate will be higher. Your age may also be a factor as some lenders will not finance a loan that goes beyond a person’s working life (age 65). If the loan has to be paid back over a shortened time period, the interest rate may be the same but the repayments will be more each month. Fixed rates are marginally higher than variable home loans at present and first home buyers still have access to the $15,000 grant if they are constructing their home, or if they are the first people to live in the home.
If the loan is to buy an investment property, the rate will depend on the percentage of the total costs that you need to borrow, whether you are wanting to have the loan as an interest only loan or as a principal and interest loan, and what property you are putting up to secure the loan. Some lenders are still offering home loan rates for investment loans where the family home is being used as security for the new loan.
Financial institutions are reworking their loan mix so what they will and won’t finance is changing – sometimes daily! Mortgage Brokers are in a unique position to help their clients as they know the rules for each of the lending institutions and can place your loan with the financial institution that gives you the most favourable terms.
For more information call Mark Scherer ph 0403 577 287