What homebuyers should look for when comparing home loans as interest rates remain low
It’s a great time to buy property with record-low interest rates, but homebuyers are cautioned to avoid these mistakes when shopping for loans.
With unprecedented cuts to Aussie home loans and ultra-low interest rates, now could be the ideal time to buy, but buyers have been warned to shop around before committing to a mortgage.
Canstar’s group executive of financial services Steve Mickenbecker told news.com.au that homebuyers should not be getting a loan for anything around the 3 per cent mark or above.
He said home loan rates are down at around 2 per cent – an ultimate low we haven’t seen before – and buyers shouldn’t be going any higher.
“We’ve not seen a minimum anywhere around that. In 2015, the average interest rate was around 5 per cent and in 2020 the national average was 3.32 per cent. That’s a huge difference in your buying power,” he said.
According to comparison site Canstar, there were 6777 cuts to home loans over the past 12 months, with an average cut of 0.3 per cent.
In January 2020, the average variable rate for owner occupiers paying principal and interest was 3.73 per cent, compared to today’s rate of 3.32 per cent.
The lowest variable rate was 2.69 per cent and it is now around 1.99 per cent or as low as 1.77 per cent, depending on the lender.
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‘YOU SHOULD BE LOOKING IN THE 2S’
Mr Mickenbecker said there are “a whole bunch of loans around 2 per cent” and was adamant that homebuyers and homeowners should not be paying any more than that rate.
“You should be looking in the 2s and you shouldn’t be paying in the 3s,” he said.
For those who already own a home, Mr Mickenbecker said mortgage holders should absolutely not be paying in the 3 per cent range. “They’re old rates. The average rate is 3.37 per cent, that’s way more than people need to be paying now. It makes such a huge difference over the life of your loan,” he said.
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FIXED VS VARIABLE?
While many home loans in the 2 per cent range are fixed rates, Mr Mickenbecker said with low rates like this, it isn’t really a risk to lock in a fixed rate.
“When rates are low, the risk diminishes getting caught in a fixed rate,” Mr Mickenbecker said.
“The rates going lower is a possibility, but is it a risk if you can afford repayments at that level?” he questioned.
Mr Mickenbecker suggested homebuyers could split the loan into fixed and variable to take advantage of the low fixed rates and added there is no harm with going with a lesser-known lender if the rate is good.
“The big banks have a level of convenience and they have brands so you feel they are trusted but smaller lenders have been around for a long time writing lots of loans so there’s nothing wrong with those,” he said.
The lowest variable home loan rate at the moment at 1.77 per cent is with one of these smaller lenders, Reduce Home Loans, but you might need around 40 per cent equity to get approval for a rate this low.
“If you want a 2 per cent loan with a big bank you will be going with a fixed-rate loan. With a smaller lender you will potentially get a smaller rate with variable,” he said.
This article is from News.com.au, you can read the full article here: