Even before the Reserve Bank reduced official interest rates this week, borrowers were testing the mortgage market to find the best rates.
Figures from finder.com.au show the big banks still dominate mortgage lending, with more than 83 per cent of new loans. But in March they lost ground to other lenders.
The reason is obvious: none of the big banks’ standard variable mortgage rates are still below 5.3 per cent. That’s a 1 per cent difference between the big banks, and the second-tier lenders.
If you have a 25-year mortgage of $400,000, the difference between a variable rate of 5.3 per cent and 4.3 per cent is around $230 a month.
I applaud the people who are using the competitive nature of the mortgage market to their advantage. It’s only by becoming informed and then acting, that you can secure the best deal. Low rates give you an opportunity to put more money in your pocket and not the bank’s. It also allows you the benefit of creating a rate “buffer” for when rates start to rise.
When interest rates move there’s no guarantee that it’s by a quarter of a per cent each month. An upward movement could be in greater leaps, giving people with large mortgages a bit of “rate shock”. By reviewing your statement, shopping around and ensuring you have the lowest possible rate, you’ll be in the best position for when a rate rise occurs.
So what should you look for to secure the best mortgage? There’s a few things to remember beyond simply the amount of interest charged on a loan.
The service proposition is one: a mortgage is a large, important debt and most borrowers find they not only find better interest rates with second-tier lenders, but also one-on-one servicing, faster approvals and decisions, and more flexibility in dealing with their circumstances. Second-tier lenders also have a reputation for charging lower fees than the big banks, largely because they have smaller overheads.
While keeping an eye on how much interest you pay, and the service quality of your home-loan provider, also remember to match your goals and lifestyle to the right home-loan features. A no-frills loan is excellent for first-home buyers and people on a budget, but an offset account home loan might be better if you’re trying to build equity fast, and a line of credit facility is good for experienced borrowers. If you’re buying an investment property, an interest-only loan might be the best pick.
When you’re looking around for a better home-loan deal, first give your current lender a chance to match the best rate you’ve found: it’s always worth a go. And remember that mortgage brokers are an excellent way to access the market if you don’t have the time, the latest knowledge or the expertise.
The March lending figures are encouraging because it shows borrowers are finding a better deal and acting with their feet. Are you?