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More doors open to the home loan market

More doors open to the home loan market

Many more potential homeowners will be eligible for mortgages this year than for the past three years, as institutions loosen the belt on lending criteria, new research shows.

About 70 percent of mortgage products now enable home buyers to borrow up to 97 percent of the value of their property, which is the highest loan-to-value ratio level recorded by RateCity since January 2009.

Damian Smith, chief executive of RateCity said the change in lending criteria indicates that lenders want to kick start growth in a sluggish mortgage market. But he warned that taking on too much debt could put borrowers at risk. 

“There’s an obvious temptation to jump into the market if an institution will lend you 95 percent of the property’s value. Remember though that you’ll almost certainly have to pay Lenders Mortgage Insurance (LMI) because your deposit is small, and most importantly, remember you now have a much larger debt. Any increase in interest rates, or a reduction in your income, has a much bigger impact because you have a larger mortgage,” Smith says.

RateCity research also reveals that, on average, a borrower with a 3 percent deposit will pay around 5 basis points more than someone with 10 percent down payment. However, a larger deposit could shave as much as 90 basis points off a standard variable rate.

How to get a good deal

When it comes to borrowing, the cheapest interest rate is not all you should worry about. Future home buyers should also find out about a loan’s features; offset accounts, internet banking access and fees should be thoroughly researched.

However, the rate you pay will significantly impact your hip pocket. Your local bank manager will likely have the power to discount on rates, particularly if you’ve taken the time to shop around for the best deals on the market. Consider borrowing from one of the many smaller lenders, because they are hungry for your business and offer some of the most competitive rates on the market.

The average standard variable rate among the big four banks is about 7.4 percent after the latest rises and if you’ve saved a good deposit you should be eligible for a rate of around 6.5 percent, or less. At this rate, borrowing a $400,000 home loan repaid over 25 years could save you around $230 in monthly repayment terms and more than $68,700 in total interest! Take control of your finances by shopping around for the best loans on offer and use the many online tools, such as budget builders and loans calculators to simplify the process.

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