Mortgage lenders slash investor home loan rates

Mortgage lenders slash investor home loan rates

Mortgage lenders are slashing interest rates for investor borrowers – many below the 3 per cent mark – providing much-needed discounts for property investors amid a dwindling rental market.

Forty-seven mortgage lenders have reduced interest rates for investors in the past two months despite no cut to the official cash rate, new RateCity data shows.

Among the lenders which did trim their investor interest rates, the average reduction was about 0.27 per cent between mid-June and mid-August.

However, borrowers living in their own homes received attention from more lenders, with 61 shaving owner-occupier rates in the same period. The average discount, at 0.26 per cent, was slightly smaller than what investors have received.

Investor interest rate cuts came from major lenders like NAB and Macquarie Bank, as well as smaller players such as Homestar Finance.

Average investor interest rates plunge

Both owner-occupier and investor interest rates have been on the decline since March, when the Reserve Bank of Australia (RBA) cut the cash rate to a record low of 0.25 per cent.

The average investor interest rate fell from 3.92 per cent in March to 3.48 per cent in August, while the average owner-occupier rate was down from 3.69 per cent to 3.26 per cent.

Investors saw a bigger drop on their average fixed rates (0.54 per cent since March) than owner-occupiers (0.48 per cent). It’s worth nothing this may have been due to investor fixed rates coming off a higher base.

However, owner-occupiers received a slightly bigger discount on variable interest rates on average at 0.35 per cent since March, compared with investors at 0.31 per cent.

While the average investor rates are still in the 3 per cent range, it’s possible to nab a lower rate. According to RateCity analysis, 27 lenders are offering investor rates below 2.5 per cent, while 92 lenders have investor rates below 3 per cent.

The lowest variable investor rate on the RateCity database is 2.49 per cent (2.52 per cent comparison rate), which comes from Homestar Finance. Meanwhile, UBank has the lowest fixed rate at 2.29 per cent (2.74 per cent comparison rate).

Average variable rates (P&I and IO)
  Owner-occupiers (%) Investors (%)
March 2020 3.90 4.21
August 2020 3.55 3.90
% change Mar-Aug 2020 -0.35 -0.31
Average fixed rates (P&I and IO)
March 2020 3.52 3.74
August 2020 3.04 3.20
% change -0.48 -0.54
Average rates (fixed and variable, P&I and IO)
March 2020 3.69 3.92
August 2020 3.26 3.48
% change -0.43 -0.44

Source: RateCity.

Extra scrutiny for new investor borrowers

Sally Tindall, research director at RateCity, said COVID-19 is expected to bring on more scrutiny from lenders to investor borrowers. And with falling rents and rising vacancies in the housing market, investors may need to do more homework before diving into the property market.

“If you are thinking about buying a new investment property or refinancing your investment loan, be prepared for extra scrutiny and potentially extra paperwork,” she said.

“At the end of the day, the bank just wants to make sure the numbers stack up, even if you hit tough financial times and that’s important.”

For mortgage holders who already have an investment property, it could be a good time to consider tapping into the low interest rate environment by looking for a better deal, Ms Tindall said.

“For most refinancers, the new rate you get, and the savings from it, will far outweigh the effort it takes to get your paperwork in order,” she said.

Lowest investor variable rates

Lender Advertised rate (%) Comparison rate (%)
Homestar Finance

2.49

2.52

Easy Street Financial Services

2.59

2.63

Police Credit Union

2.69

2.74

Pacific Mortgage Group

2.69

2.69

State Custodians

2.74

2.76

Lowest investor fixed rates

Lender Advertised rate (%) Comparison rate (%)
Hume Bank*

1.99

3.71

UBank

2.29

2.74

MOVE Bank

2.39

3.52

Well Home Loans

2.39

2.82

HSBC

2.39

3.39

*Hume Bank rate is only available to new loans for the purpose of renovation or construction of new properties located within a 150 kilometre radius from the Albury Post Office, 570 Dean Street, Albury NSW 2640.

Source: RateCity. As of August 18, 2020.

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Learn more about home loans

How can I get ANZ home loan pre-approval?

Shopping for a new home is an exciting experience and getting a pre-approval on the loan may give you the peace of mind that you are looking at properties within your budget. 

At the time of applying for the ANZ Bank home loan pre-approval, you will be required to provide proof of employment and income, along with records of your savings and debts.

An ANZ home loan pre-approval time frame is usually up to three months. However, being pre-approved doesn’t necessarily mean you will get your home loan. Other factors could lead to your home loan application being rejected, even with a prior pre-approval. Some factors include the property evaluation not meeting the bank’s criteria or a change in your financial circumstances.

You can make an application for ANZ home loan pre-approval online or call on 1800100641 Mon-Fri 8.00 am to 8.00 pm (AEST).

Interest Rate

Your current home loan interest rate. To accurately calculate how much you could save, an accurate interest figure is required. If you are not certain, check your bank statement or log into your mortgage account.

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 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 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 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.

How much deposit will I need to buy a house?

A deposit of 20 per cent or more is ideal as it’s typically the amount a lender sees as ‘safe’. Being a safe borrower is a good position to be in as you’ll have a range of lenders to pick from, with some likely to offer up a lower interest rate as a reward. Additionally, a deposit of over 20 per cent usually eliminates the need for lender’s mortgage insurance (LMI) which can add thousands to the cost of buying your home.

While you can get a loan with as little as 5 per cent deposit, it’s definitely not the most advisable way to enter the home loan market. Banks view people with low deposits as ‘high risk’ and often charge higher interest rates as a precaution. The smaller your deposit, the more you’ll also have to pay in LMI as it works on a sliding scale dependent on your deposit size.

What are the pros and cons of no-deposit home loans?

It’s no longer possible to get a no-deposit home loan in Australia. In some circumstances, you might be able to take out a mortgage with a 5 per cent deposit – but before you do so, it’s important to weigh up the pros and cons.

The big advantage of borrowing 95 per cent (also known as a 95 per cent home loan) is that you get to buy your property sooner. That may be particularly important if you plan to purchase in a rising market, where prices are increasing faster than you can accumulate savings.

But 95 per cent home loans also have disadvantages. First, the 95 per cent home loan market is relatively small, so you’ll have fewer options to choose from. Second, you’ll probably have to pay LMI (lender’s mortgage insurance). Third, you’ll probably be charged a higher interest rate. Fourth, the more you borrow, the more you’ll ultimately have to pay in interest. Fifth, if your property declines in value, your mortgage might end up being worth more than your home.

Monthly Repayment

Your current monthly home loan repayment. To accurately calculate how much you could save, an accurate payment figure is required. If you are not certain, check your bank statement.

Remaining loan term

The length of time it will take to pay off your current home loan, based on the currently-entered mortgage balance, monthly repayment and interest rate.

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. 

If I don't like my new lender after I refinance, can I go back to my previous lender?

If you wish to return to your previous lender after refinancing, you will have to go through the refinancing process again and pay a second set of discharge and upfront fees. 

Therefore, before you refinance, it’s important to weigh up the new prospective lender against your current lender in a number of areas, including fees, flexibility, customer service and interest rate.

Can I refinance if I have other products bundled with my home loan?

If your home loan was part of a package deal that included access to credit cards, transaction accounts or term deposits from the same lender, switching all of these over to a new lender can seem daunting. However, some lenders offer to manage part of this process for you as an incentive to refinance with them – contact your lender to learn more about what they offer.