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Mortgage competition warms up in time for a merry Christmas

Mortgage competition warms up in time for a merry Christmas

November 10, 2009

Be sure to shop around for home loans with lower fees and better features as the economy warms up in time for Christmas and lenders become eager to compete for market share, by Jackie Pearson.

As the year comes closer to an end, Australia’s real estate market slows down for the holiday season. So too does the home loan industry which is when many lenders take the opportunity to lure new customers.

RateCity CEO Damian Smith says packaged deals are where you are likely to find the most competitive home loan offers in the months ahead.

“We think you can expect to see the banks more willing to negotiate privately and offer packaged deals that are not advertised, especially to customers who bring a lot of other business, such as insurance, to the bank with their home loan,” says Smith.

“So don’t take the first offer, is our first piece of guidance for borrowers. Make sure you shop around and negotiate.”

Although it is the major banks that can include the most in packages, including fee-free transaction accounts and insurance discounts, Smith says most lenders are now bundling some other products, such as credit cards, with their home loans.

Hungry for market share
“The overall picture is that there is a more competitive home loan market emerging,” says Smith. “Both banks and non-banks are more willing to chase market share again.”

While the global financial downturn had made it difficult for anyone but the big banks to raise capital, “for institutions other than the big four banks their ability to raise funds through global capital markets has improved substantially in recent months,” he says.

Relatively small players in the Australian home loan market, like Members Equity Bank, have had a major part in re-igniting competition, according to Smith.

ME made global headlines when it was the first institution since the collapse of Leehman Brothers last year to raise capital by issuing Residential Mortgage Backed Securities (RMBS) without using a government safety net.

Innovative loans
According to Smith, Bankwest will continue to be used “as a bit of a test lab” for innovative home loan products in the Australian marketplace. For example, the Bankwest Rate Tracker home loan promises to keep your variable rate 1 percent lower than the average standard of the big four banks.

It comes with a two-year introductory rate. Alternatively the Bankwest Capped Rate home loan protects your rate in the event of official rate rises until November 2012.

Smith says while there will be competition around fees and features, there’s no doubt rates will go up over the next year.

“Borrowers should factor in between $200 and $300 per month in additional costs by the end of next year,” he says.

The key to finding a home loan surprise under your Christmas tree this year is to be prepared to negotiate with lenders to ensure you walk away with something better than their advertised offers.

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Learn more about home loans

Does the Home Loan Rate Promise apply to discounted interest rate offers, such as honeymoon rates?

No. Temporary discounts to home loan interest rates will expire after a limited time, so they aren’t valid for comparing home loans as part of the Home Loan Rate Promise.

However, if your home loan has been discounted from the lender’s standard rate on a permanent basis, you can check if we can find an even lower rate that could apply to you.

How do I apply for a home improvement loan?

When you want to renovate your home, you may need to take out a loan to cover the costs. You could apply for a home improvement loan, which is a personal loan that you use to cover the costs of your home renovations. There is no difference between applying for this type of home improvement loan and applying for a standard personal loan. It would be best to check and compare the features, fees and details of the loan before applying. 

Besides taking out a home improvement loan, you could also:

  1. Use the equity in your house: Equity is the difference between your property’s value and the amount you still owe on your home loan. You may be able to access this equity by refinancing your home loan and then using it to finance your home improvement.  Speak with your lender or a mortgage broker about accessing your equity.
  2. Utilise the redraw facility of your home loan: Check whether the existing home loan has a redraw facility. A redraw facility allows you to access additional funds you’ve repaid into your home loan. Some lenders offer this on variable rate home loans but not on fixed. If this option is available to you, contact your lender to discuss how to access it.
  3. Apply for a construction loan: A construction loan is typically used when constructing a new property but can also be used as a home renovation loan. You may find that a construction loan is a suitable option as it enables you to draw funds as your renovation project progresses. You can compare construction home loans online or speak to a mortgage broker about taking out such a loan.
  4. Look into government grants: Check whether there are any government grants offered when you need the funds and whether you qualify. Initiatives like the HomeBuilder Grant were offered by the Federal Government for a limited period until April 2021. They could help fund your renovations either in full or just partially.  

When do mortgage payments start after settlement?

Generally speaking, your first mortgage payment falls due one month after the settlement date. However, this may vary based on your mortgage terms. You can check the exact date by contacting your lender.

Usually your settlement agent will meet the seller’s representatives to exchange documents at an agreed place and time. The balance purchase price is paid to the seller. The lender will register a mortgage against your title and give you the funds to purchase the new home.

Once the settlement process is complete, the lender allows you to draw down the loan. The loan amount is debited from your loan account. As soon as the settlement paperwork is sorted, you can collect the keys to your new home and work your way through the moving-in checklist.

When does Commonwealth Bank charge an early exit fee?

When you take out a fixed interest home loan with the Commonwealth Bank, you’re able to lock the interest for a particular period. If the rates change during this period, your repayments remain unchanged. If you break the loan during the fixed interest period, you’ll have to pay the Commonwealth Bank home loan early exit fee and an administrative fee.

The Early Repayment Adjustment (ERA) and Administrative fees are applicable in the following instances:

  • If you switch your loan from fixed interest to variable rate
  • When you apply for a top-up home loan
  • If you repay over and above the annual threshold limit, which is $10,000 per year during the fixed interest period
  • When you prepay the entire outstanding loan balance before the end of the fixed interest duration.

The fee calculation depends on the interest rates, the amount you’ve repaid and the loan size. You can contact the lender to understand more about what you may have to pay.