How to obtain the lowest possible rate on your loan?
Updated: Oct 1
In the current environment of stimulatory macroeconomic policy, the lowest interest rate on mortgage has decreased to lower than 1.8%. However, what it takes to get these rates on your loan is more than a call with your loan or finance agent.
No matter whether you are planning to make a new purchase or to refinance, capital is always paramount to obtaining lower interest rates. Capital refers to the amount of funds that you are able to contribute upfront to the purchase, often measured by the size of downpayment. The more capital, the more attractive you are to the lender. Additionally, preparedness for changing between banks is also a key factor in getting lower rates.
It is naive to expect the big banks to provide the best rates on loans. Especially if you see other features of the loan as important to your decision making, please do not place attention solely on the level of interest rates. According to a list of lenders with the lowest market rates published by Canstar, only one of the big four banks (Westpac) has been included among the low-rate lenders, with a four year fixed rate of 1.89%. Whereas all other low rates come from online lenders and relatively smaller mutual banks. Information about interest rates can be found on the lenders’ websites, or through contacting your mortgage broker.
Start from the Basics
According to Effie Zahos from Canstar, the very first thing you should do to get a lower rate is to know yourself. Know the rate that you are paying currently and your loan balance. Usually, starting from your current lender is the easiest option as this avoids refinancing and associated costs.
Marcus Roberts from Brighter Finance expressed similar opinions, that it is vital for a borrower to know their own needs and capacity. The ways to gain a better understanding of your current circumstances and capacity include talking to a mortgage broker, visiting rate comparison platforms such as Canstar and Finder, and conducting research on potential lenders. These actions will definitely be helpful for you to formulate a clearer view on what you want and what you need. After gathering a list of potential lenders and loan products, you can start assessing a range of loan features and determine whether they suit your appetite. Of course, cost and interest rates are vital, but please do not neglect other potentially more important features. Some examples, says Mr Roberts, may include multiple offset accounts or exemption of lender mortgage insurance.” whether your income and assets gives you capacity for the loan. Many people seek assistance from mortgage brokers since the process of gathering information can be daunting and time-consuming. It also requires persistence and determination. If your situation is clear and simple, self-learning and research can be an attractive option, but often things turn out more complex than we expect them to be. A loan expert would be helpful in providing the optimal finance solutions tailored to your needs and circumstances.
Look beyond loyalty
According to recent research by Mozo, borrowers are pondering on their loyalty to their banks. However, it is important to realise that there are many online lenders that offer much more competitive rates. According to Tom Godfrey from Mozo, loyalty need not become a concern - loyalty would not always lead to lower rates and it may be better to change. You can obtain better rates by shopping around. Many still feel uncomfortable with smaller lenders and online lenders, but when you borrow, who lends you the money is not that important.
Credit score misconception
Your credit score is not the only factor that determines the level of interest rates! Your employment situation and capital contribution is equally important to the lender’s decision. It is essential to maintain stable income inflows in the months leading up to applying for a loan, and be able to contribute down payment of 20% or more.
Ultimately, the most effective and time-efficient way of obtaining lower rates is to contact a mortgage broker. KBRZ has a team of experienced brokers and we are always here to provide tailored loan solutions that will allow you to maximise your wealth regardless of your circumstances. If you are currently interested in purchasing a property, or if you have any further questions, please feel free to contact us today.