According to Rate City research, some of the lowest interest rates are currently reserved for mortgage holders who already have a reasonable amount of equity in their property.
The research, released to mark the Reserve Bank of Australia’s rate decision on Tuesday, found that one of the lowest rates studied (3.44 per cent) was only offered to those who already owned at least 70 per cent of their property. This rate was only available to Mortgage House clients who had at most 30 per cent of their loan to pay off.
However, Homestar Finance had an equal rate as part of a refinance offer that was available to borrowers who had at most 80 per cent of their loan to pay off.
Money editor Sally Tindall added that lenders are searching for their ideal borrowers; home owners who had already paid deposits of at least 20 per cent.
She said, “Borrowers who have benefited from the property boom are in the drivers’ seat when it comes to rates.
“The banks want you to have some skin in the game. If you own more than 20 per cent of your property, you’re holding a powerful bargaining chip.”
Not so fast
Finder.com.au last year warned home owners that “not all low-rate home loans are equal”, arguing that rates that look too good to be true probably are.
Low loan-to-value ratios, like Mortgage House’s 30 per cent, means borrowers need to either save a hefty deposit or already own a lot of their property. So while, they work for some, they don’t work for all, finder.com.au explained.
“These loans can be a great option for some borrowers, but those with a minimal deposit could be enticed by an advertisement for a low rate, only to be disappointed by the loan’s borrowing criteria,” finder said.
Finder.com.au continued, flagging high fees as another risk area that low-rate loans offers might hide.
“This is where the comparison rate comes into play,” finder advised.
“A comparison rate takes into account both a home loan’s interest rate and all associated fees, and expresses this as a single annual percentage. While it isn’t a perfect method for comparing loans, it can help you easily identify loans that come with high fees.”
Finder also warned of high revert rates, which is the interest rate reverted to after a certain period.
“This doesn’t necessarily mean you have to avoid introductory rate or fixed-rate home loans, but it does mean you need to pay close attention to the rate the loan will revert to. If you intend to refinance at the end of the introductory or fixed-rate period, make sure the costs involved won’t eat up any savings you might see,” finder said.