FINANCIAL institutions desperate to snare new customers are offering record-breaking discounts of up to 1.65 per cent as competition in the mortgage market continues to increase.
But experts are warning home loan customers not to be sucked in by discounts, which are bringing repayments down by hundreds of dollars a month, but are not necessarily the best available.
The lowest variable market on financial comparison site Canstar’s database is loans.com.au which has a mortgage deal with a rate of 4.23 per cent – no discount applies to this advertised rate.
However, smaller lenders including the Bank of Sydney are offering the biggest discount of 1.65 per cent off the standard variable rate.
Other institutions including Wide Bay Australia and Newcastle Permanent are offering customers more than 1 per cent off the SVR, but Canstar’s research manager Mitchell Watson warned that customers needed to look beyond these attractive discounts.
‘The discounts we are seeing are off lenders’ standard variable rates which are more a lenders’ point of reference rather than a product people buy,” he said.
‘It’s these packaged rates and discounted deals people are taking out, but you need to look past the discount.
‘Find out what the real rate is that you are receiving.’
The Reserve Bank of Australia this week said in its biannual Financial Stability Review that the fierce competition among financial institutions had led to the heavy discounting.
‘Lenders are competing for new borrowers by offering attractive fixed rates and significantly discounting their advertised variable rates, discounts of 100 basis points or more are now widely available,” the RBA said.
Bank of Sydney’s Expect More Home Loan package offers a discount of 1.65 per cent, reducing the product’s interest rate to 4.48 per cent – by no means the lowest rate on the market.
This means borrowed on a $350,000, 25-year loan would pay $1664 on their monthly repayments – the discount seeing their repayments reduced by $293 per month.
The average standard variable rate for the same loan is 5.13 per cent and the average three-year fixed rate is 4.64 per cent.
But the Mortgage and Finance Association of Australia’s chief executive officer, Siobhan Hayden, said any borrower ‘can sharpen the pencil of the standard variable rate by simply asking.’
Economists are forecasting the cash rate – currently at 2.25 per cent – will fall further again this year and have pinpointed May as the most likely time for the next drop.
1300homeloan director John Kolenda urged consumers to review their mortgage every 12 months to ensure they are getting the best deal possible and find out whether the home loan has other facilities such as an offset and redraw account.