Lenders slash home loan rates in 2016, with just one catch

Lenders slash home loan rates in 2016, with just one catch

Competition among mortgage providers is already heating up with hot new discounts from a range of lenders hitting the market in the first few weeks of January.

AMP Bank, Beyond Bank, Click Home Loans, IMB, Mortgage House and Suncorp Bank have all announced new low rates in 2016, slashed by up to 0.45 percentage points.

That might seem like small change but on a $300,000 home loan, it’s an extra $81 off your mortgage repayments a month, or $972 a year.  If you invest that $81 back into your mortgage each month you’ll save around $29,000 over the life of a 30 year loan, and pay it off three years earlier.

There is, however, a catch – these deals are only for new customers.

Sally Tindall, money editor at RateCity.com.au said, “We regularly see exciting new rates come on to the market but when we do a bit of digging, we often discover that they’re for new customers only”.

“It’s not exactly common for a lender to decide to lower an existing customer’s variable rate, except in response to a cut in the RBA cash rate.

“These double standards can feel like a slap in the face for loyal customers, but that doesn’t mean you have to just cop it.  If you are a long-serving customer, find out what rate your bank is offering new customers, because if it’s different, you’ve just got yourself a bargaining chip,” she said.

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Tindall also cautioned bargain hunters looking to nab a new low mortgage rate to read all the terms and conditions before signing the dotted line.

“While these rates can often be cracking deals, it’s important to read the fine print, particularly if they’re only for a limited time because you may find that the rate jumps up dramatically after the honeymoon period is over.

While some lenders have launched into 2016 with a rate-cut offensive, others have decided to lift their rates.

RateCity analysis shows that since the New Year, over 50 home loan products have gone up by as high as 0.89 percentage points.

These rate hikes are very different to the rate cuts, in that they are generally applied to all customers.

ING Direct have decided to hedge their bets each way after announcing back in November they were lifting their rates by 18 basis points, in line with the rise adopted by all the major banks.  Since then, Mortgage Business reports they won’t apply this hike for new customers, provided they are owner-occupiers with a deposit of 20 per cent or more. Existing owner-occupier customers with loans of $150,000 or more get a smaller discount of 6 basis points which will leave them at a net rate hike of 12 basis points.

RateCity.com.au shows advertised variable rates start from 3.89 per cent, and 3-year fixed rates from 3.89 per cent. For a full list of mortgage interest rates click here.

Lenders who have cut their lowest rate or applied special deal to lowest rate

Company

Product name

New rate

Old rate

Diff

AMP Bank

Essential Variable

4.08%

4.38%

-0.30%

Beyond Bank

Low Rate Special

3.99%

4.14%*

-0.15%

Click Loans

Online Offset Home Loan 70%

3.98%

4.19%

-0.21%

IMB

3 yr Platinum Fixed Rate Investors <80% LVR

4.24%

4.44%

-0.20%

Mortgage House

Easy Start Variable 1 yr

3.69%

3.94%*

-0.25%

Suncorp Bank

Home Package Plus Special Fixed Owner Occ 3 yr

4.09%

4.29%*

-0.20%

Related links:Source: ratecity.com.au

 

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Learn more about home loans

What happens to my home loan when interest rates rise?

If you are on a variable rate home loan, every so often your rate will be subject to increases and decreases. Rate changes are determined by your lender, not the Reserve Bank of Australia, however often when the RBA changes the cash rate, a number of banks will follow suit, at least to some extent. You can use RateCity cash rate to check how the latest interest rate change affected your mortgage interest rate.

When your rate rises, you will be required to pay your bank more each month in mortgage repayments. Similarly, if your interest rate is cut, then your monthly repayments will decrease. Your lender will notify you of what your new repayments will be, although you can do the calculations yourself, and compare other home loan rates using our mortgage calculator.

There is no way of conclusively predicting when interest rates will go up or down on home loans so if you prefer a more stable approach consider opting for a fixed rate loan.

What is the difference between a fixed rate and variable rate?

A variable rate can fluctuate over the life of a loan as determined by your lender. While the rate is broadly reflective of market conditions, including the Reserve Bank’s cash rate, it is by no means the sole determining factor in your bank’s decision-making process.

A fixed rate is one which is set for a period of time, regardless of market fluctuations. Fixed rates can be as short as one year or as long as 15 years however after this time it will revert to a variable rate, unless you negotiate with your bank to enter into another fixed term agreement

Variable rates is that they are typically more flexible than their fixed rate counterparts which means that a lot of these products will let you make extra repayments and offer features such as offset accounts however fixed rates do offer customers a level of security by knowing exactly how much they need to set aside each month.

What is the difference between fixed, variable and split rates?

Fixed rate

A fixed rate home loan is a loan where the interest rate is set for a certain amount of time, usually between one and 15 years. The advantage of a fixed rate is that you know exactly how much your repayments will be for the duration of the fixed term. There are some disadvantages to fixing that you need to be aware of. Some products won’t let you make extra repayments, or offer tools such as an offset account to help you reduce your interest, while others will charge a significant break fee if you decide to terminate the loan before the fixed period finishes.

Variable rate

A variable rate home loan is one where the interest rate can and will change over the course of your loan. The rate is determined by your lender, not the Reserve Bank of Australia, so while the cash rate might go down, your bank may decide not to follow suit, although they do broadly follow market conditions. One of the upsides of variable rates is that they are typically more flexible than their fixed rate counterparts which means that a lot of these products will let you make extra repayments and offer features such as offset accounts.

Split rates home loans

A split loan lets you fix a portion of your loan, and leave the remainder on a variable rate so you get a bet each way on fixed and variable rates. A split loan is a good option for someone who wants the peace of mind that regular repayments can provide but still wants to retain some of the additional features variable loans typically provide such as an offset account. Of course, with most things in life, split loans are still a trade-off. If the variable rate goes down, for example, the lower interest rates will only apply to the section that you didn’t fix.

What is a variable home loan?

A variable rate home loan is one where the interest rate can and will change over the course of your loan. The rate is determined by your lender, not the Reserve Bank of Australia, so while the cash rate might go down, your bank may decide not to follow suit, although they do broadly follow market conditions. One of the upsides of variable rates is that they are typically more flexible than their fixed rate counterparts which means that a lot of these products will let you make extra repayments and offer features such as offset accounts.

What is a comparison rate?

The comparison rate is a more inclusive way of comparing home loans that factors in not only on the interest rate but also the majority of upfront and ongoing charges that add to the total cost of a home loan.

The rate is calculated using an industry-wide formula based on a $150,000 loan over a 25-year period and includes things like revert rates after an introductory or fixed rate period, application fees and monthly account keeping fees.

In Australia, all lenders are required by law to publish the comparison rate alongside their advertised rate so people can compare products easily.

What is a standard variable rate (SVR)?

The standard variable rate (SVR) is the interest rate a lender applies to their standard home loan. It is a variable interest rate which is normally used as a benchmark from which they price their other variable rate home loan products.

A standard variable rate home loan typically includes most, if not all the features the lender has on offer, such as an offset account, but it often comes with a higher interest rate attached than their most ‘basic’ product on offer (usually referred to as their basic variable rate mortgage).

What is a honeymoon rate and honeymoon period?

Also known as the ‘introductory rate’ or ‘bait rate’, a honeymoon rate is a special low interest rate applied to loans for an initial period to attract more borrowers. The honeymoon period when this lower rate applies usually varies from six months to one year. The rate can be fixed, capped or variable for the first 12 months of the loan. At the end of the term, the loan reverts to the standard variable rate.

What is the best interest rate for a mortgage?

The fastest way to find out what the lowest interest rates on the market are is to use a comparison website.

While a low interest rate is highly preferable, it is not the only factor that will determine whether a particular loan is right for you.

Loans with low interest rates can often include hidden catches, such as high fees or a period of low rates which jumps up after the introductory period has ended.

To work out the best value for money, have a look at a loan’s comparison rate and read the fine print to get across all the fees and charges that you could be theoretically charged over the life of the loan.

What is a fixed home loan?

A fixed rate home loan is a loan where the interest rate is set for a certain amount of time, usually between one and 15 years. The advantage of a fixed rate is that you know exactly how much your repayments will be for the duration of the fixed term. There are some disadvantages to fixing that you need to be aware of. Some products won’t let you make extra repayments, or offer tools such as an offset account to help you reduce your interest, while others will charge a significant break fee if you decide to terminate the loan before the fixed period finishes.

How much are repayments on a $250K mortgage?

The exact repayment amount for a $250,000 mortgage will be determined by several factors including your deposit size, interest rate and the type of loan. It is best to use a mortgage calculator to determine your actual repayment size.

For example, the monthly repayments on a $250,000 loan with a 5 per cent interest rate over 30 years will be $1342. For a loan of $300,000 on the same rate and loan term, the monthly repayments will be $1610 and for a $500,000 loan, the monthly repayments will be $2684.

What is the average annual percentage rate?

Also known as the comparison rate, or sometimes the ‘true rate’ of a loan, the average annual percentage rate (AAPR) is used to indicate the overall cost of a loan after considering all the fees, charges and other factors, such as introductory offers and honeymoon rates.

The AAPR is calculated based on a standardised loan amount and loan term, and doesn’t include any extra non-standard charges.

Does Australia have no cost refinancing?

No Cost Refinancing is an option available in the US where the lender or broker covers your switching costs, such as appraisal fees and settlement costs. Unfortunately, no cost refinancing isn’t available in Australia.

Can I change jobs while I am applying for a home loan?

Whether you’re a new borrower or you’re refinancing your home loan, many lenders require you to be in a permanent job with the same employer for at least 6 months before applying for a home loan. Different lenders have different requirements. 

If your work situation changes for any reason while you’re applying for a mortgage, this could reduce your chances of successfully completing the process. Contacting the lender as soon as you know your employment situation is changing may allow you to work something out. 

Can I get a home loan if I am on an employment contract?

Some lenders will allow you to apply for a mortgage if you are a contractor or freelancer. However, many lenders prefer you to be in a permanent, ongoing role, because a more stable income means you’re more likely to keep up with your repayments.

If you’re a contractor, freelancer, or are otherwise self-employed, it may still be possible to apply for a low-doc home loan, as these mortgages require less specific proof of income.