Mortgage Broker – Established Residential Investment & Home Loan Specialist

Compare Home Loan Interest Rates - Refinance to a Lower Interest Rate

Comparing Home Loan Interest Rates

 

Hello, Nathan here and thanks for visiting my Comparing Home Loan Interest Rates webpage where I am going to give you an insight as to what you need to be careful about when are Comparing Home Loan Interest Rates. There are two reasons why you might be comparing home loan interest rates:

  1. You want to buy a property and haven’t yet decided which lender to use, so you are researching the internet about the different interest rates that are on offer
  2. You have seen lower interest rates advertised on TV and you are thinking about refinancing your current home loan and before you do you want to compare a few different home loan interest rates

Regardless if you are buying or refinancing there are a few variables you need to know about to ensure that you are comparing apples with apples and although I am biased I highly recommend that you speak with a professional Mortgage Broker who can assist you with the multitude of home loan features that come with the different types of home loan products to make sure what you a needing if found without over paying, without paying an interest rate that will cost you thousands extra over the life of your home loan.

If you are comparing home loan interest rates and you want to get in touch with me directly, fee free to visit my Contact Us webpage for my details.

Comparing Home Loan Interest Rates – LVR

The first thing every Bank, every Home Loan Lender and every Mortgage Broker will want to find out is your LVR, your Loan to Value Ratio. The reason for this, put into simple terms, is because the higher the LVR, the higher the risk, which may attract a higher interest rate. So when comparing home loan interest rates you need to make sure you are looking at products that have the same LVR.

So how is this LVR calculated?

The formula is – Home Loan Amount ÷ Purchase Price/Valuation × 100 = LVR%

  • When purchasing:
    • Depending on the Purchase Price and  how much deposit you have will in most cases determine the LVR.
    • The Bank still has the right to conduct a Valuation to ensure that your Purchase Price was not higher than the actual property value.
    • Please Note: Your Deposit does NOT include the Stamp Duty, Loan Set Up Costs, Settlement Agent/Conveyancer fees and other associated costs, which as a guide are generally in the vicinity of 5% of the Purchase Price. For example:
      • $400,000 = Purchase Price
      • $20,000 = 5% of the Purchase Price, which is the estimated Purchasing Fees and Charges (as a ‘non’ First Home Buyer)
        • Some First Home Buyers may receive a First Home Buyers Grant and a reduction in the Stamp Duty Rate
      • You have $100,000 saved deposit less $20,000 to cover the Fees and Charges leaves $80,000
      • $320,000 = Final Loan Amount ($400,000 less $80,000)
      • Therefore your LVR is:
        • $320,000 (Loan Amount) ÷ $400,000 (purchase price = 0.80 × 100 = 80% LVR

Traditionally loans that have an LVR equal to or less than 80% come with a lower interest rate, especially comparing home loan interest rates to those at 95% LVR because as you can imagine, if house prices fall and you miss a Home Loan repayment and the Bank has to sell your home, they may make a loss, which is why the in a lot of cases, the riskier the loan the higher the Interest Rate.

  • When Refinancing:
    • It all depends on the Valuation compared to your Loan Amount that will determine your LVR.
    • Some people call the difference as the ‘Equity’ but I don’t really like this term because it implies that you own this equity when in reality you can’t access all of it until you sell but even then, you have to deduct the Real Estate Agent Fees, Settlement Agent/Conveyancer Fees, Loan Closure Costs and State Revenue Department Fees. And when you are refinancing, the general rule is that you can refinance up to 90% LVR – never 100% LVR.
    • The main difference between refinancing and purchasing is the difference in cost. You can see when purchasing the costs are about 5% of the Purchase Price. When refinancing, unless if you have a Fixed Interest Rate Home Loan it will cost approximately $2,000, which includes:
      • Existing Bank’s Loan Closure Fee (Discharge Fee)
      • State Revenue Department charge:
        • Registration of Discharge
        • Discharge of Mortgage
        • Registration of Mortgage (with the new Lender)
      • New Lender and 3rd party Set Up Fees – if applicable – including but not limited to:
        • Application Fee
        • Valuation Fee
        • Title Insurance
        • Document Preparation Fee
        • Settlement Fee
        • Disbursement Fee
        • Monthly/Annual Fee in Advance
      • Brokerage Fees – if applicable
    • When refinancing you can generally add the costs to refinance on top of the loan amount, so the fees don’t come directly out of your savings but please be mindful, you now have to pay interest on top of the fees that are charged when adding back onto the loan.

As you can see comparing home loan interest rates without taking into account your estimated LVR may give you different results if you are trying to do it yourself. I highly recommend that you seek out the professional assistance of your local Mortgage Broker.

Comparing Home Loan Interest Rates – Features

The main features I like to look at when comparing home loan interest rates are:

  • Monthly/Annual Fee:
    • All Banks offer what is commonly known as a ‘Pro Pack’ or ‘Professional Package’ where the Big 4 Banks charge $395 Annual Fee to receive a discounted interest rate, free savings/offset account, Credit Card Annual Fee waiver and additional discounts off insurance products, savings product and financial planning products
    • I prefer to use products that have $0 monthly and $0 annual fee because that money is better off in your back pocket – not the Banks!
  • Free 100% Offset Account:
    • Regardless if you are comparing a Home Loan interest rate or an Investment Property Loan interest rate an Offset Account is a great Money Management tool that you can use to your advantage. The Banks won’t teach you how to use it properly because they still want to make maximum profits for their shareholders but a good Mortgage Broker will give you all the tips and tricks required to get the Offset Account working in your favour.
  • Fee Free Lump Sum Loan Repayment:
    • You never know when you may receive a large lump sum amount of money, from an ATO Tax Return, to a sale of an asset or the receipt of an inheritance. Before you can figure out how to use the funds it is a great idea to dump into your Offset Account or Home Loan Account to save home loan interest on a daily basis.
  • Free Redraw:
    • If you can dump additional funds into your Home Loan you need the ability to redraw this back out if required, especially in the case of an emergency. I don’t believe in the ‘Pregnancy Pause’ some Banks offer, which essentially allows you to go backwards for a period of time and watch your Home Loan interest capitalise back on top of your Home Loan Principal.
  • Interest Only Option:
    • Most clients I meet don’t understand how loans actually work and when you understand this, you can then get them to work in your favour. For example, every dollar greater than the Interest Only repayment comes 100% off the Principal. Therefore you can turn your Interest Only Home Loan into a Principal & Interest Home Loan without fee or penalty and without having to ask the Bank. Whereas you cannot turn a Principal & Interest Home Loan into an Interest Only Home Loan without paying a ‘switching fee’.
    • The other main benefit of having an Interest Only Home Loan is the fact that if you do get ahead, you can redraw back to the limit, again without having to get approval from the Bank. So if your car blow up and you need a new one you could simply redraw the funds from your Home Loan.
      • WARNING: Having an Interest Only Home Loan requires discipline. Using funds from a Home Loan to buy a Car without increasing your Loan Repayment may see you repay much more interest compared to getting a Car Loan. Before you redraw any significant funds from your Offset Account or Home Loan Account make sure you ask your Mortgage Broker for guidance.

As you can see there is a bit more involved when comparing home loan interest rates, in particular the top 5 features detailed above. Looking for the cheapest home loan interest rate will normally mean you lose some important features. So what seems cheap today may cause you to refinance in the future to another product, which when you factor the costs of refinancing may see you paying a much higher interest rate in the long run.

Comparing Home Loan Interest Rates – Summary

My goal as a Mortgage Broker is to find my clients a Home Loan Product that is not just suitable for today but also flexible into your future. When you avoid the $395 Annual Fee like the Big 4 Banks Professional Package products it allows you to chop and change your Home Loan over time. What I mean by that is $395 × 30 years = $11,850.

If you refinanced your Home Loan every 5 years, so 5 times over a 30 year period, and it costs about $2,000 each time, you are still ahead compared to paying the $395 Annual Fee. On average people refinance every 3 to 4 years, whereas my clients on average will look to refinance every 6 to 7 years, which potentially saves them thousand over the life of their Home Loan.

When comparing Home Loan Interest Rates the top 5 features of my preferred Home Loan product are:

  1. $0 Ongoing Fees
  2. Free 100% Offset Account
  3. Fee Free Lump Sum Payment
  4. Free Redraw
  5. Interest Only Option

As a Mortgage Broker I then look at the Lender’s Credit Policy, Serviceability and Service Levels before, during and after settlement. Lastly I will look at the Interest Rate because if I don’t have what I need detailed above, I know that over time the Home Loan product will cost you more…

I hope you keep in mind my top 5 Home Loan features when comparing Home Loan Interest Rates and if you are interest to find out which Lender I prefer to use, just go to my Contact Us page and get in touch.

Best wishes for now.

 

Nathan Daniell
Managing Director / Mortgage Broker
Simplify Your Mortgage Pty Ltd
Australian Credit License Number: 387974
M: 0413 615 913
E: support@sym.net.au

P.S. I really appreciate your time to read though my Comparing Home Loan Interest Rates webpage, I really hope it has allowed you to make a more informed decision regarding your own finances.

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