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Intro vs Life of Loan Interest Rates

Discussion in 'Property Finance' started by kamchatsky, 24th Aug, 2016.

  1. kamchatsky

    kamchatsky Well-Known Member

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    I have just had a 5 year IO loan (just under 500K) approved with Westpac at 4.14%. Westpac today just came out a new offer with 3.99% for first 3 years, then revert back to 4.43% after 3 years.

    Just wondering whether people here prefer to have intro rate, and then refinance it off prior to 3 years is up. Or they prefer to have life of loan rates. There are obviously pros and cons on each, but I just want to hear your thoughts.
     
  2. Colin Rice

    Colin Rice Mortgage Broker Australia Wide Business Member

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    Intro rates can work well as when the anniversary comes up its a good time to review your lending.

    You dont necessarily have to move banks as with most banks you can switch to a different product.

    I think banks use it as a carrot as they know most wont check when it kicks up to the higher rate, but we arent like that on PC ;)
     
  3. Terry_w

    Terry_w Solicitor, Finance Broker, CTA Business Member

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    What happens after 3 years if you can no longer service?
     
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  4. Jamie Moore

    Jamie Moore MORTGAGE BROKER - AUSTRALIA WIDE Business Member

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    Personally - I prefer to have a nice, large ongoing discount off the SVR

    Cheers

    Jamie
     
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  5. kamchatsky

    kamchatsky Well-Known Member

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    It would automatically go back to 4.43% or equivalent rate at that time. So 0.29% higher.

    But good point about the risk of no longer service the loan.
     
  6. Terry_w

    Terry_w Solicitor, Finance Broker, CTA Business Member

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    It can be good to do, but there is a risk you could be stuck with that product.
     
  7. Corey Batt

    Corey Batt Finance Strategist Business Plus Member

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    You wouldn't be stuck as you don't need to re-apply for the loan - you just do a product switch to their standard variable product.

    Different if you go to a lender specifically for that one product and intend to refi away in 2-3 years to the next lender - but as an initial discount rate and switch within the same lender its a valid strategy - especially if they allow IO extensions easily or not require it to match the initial period.

    The one I think people have to be wary of is taking a cheap fixed rate with a lender which only allows IO to match the fix rate. After say 2-3 years you're having to re-apply for the IO extension, instead of 5-10 years down the track. Unfortunately a number of lenders which never used to do this are starting to now, so you've got to be careful not to be caught out.
     
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  8. albanga

    albanga Well-Known Member

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    Also remember some of these intro rates are bare basic products without features such as an offset account. What happens if it's your PPOR and you have a fair bit of surplus cash??
     
  9. Peter_Tersteeg

    Peter_Tersteeg Finance broker and strategist Business Member

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    The Westpac intro rate offer is for new business only. You can't switch an existing Westpac loan to this product.

    Also if you stay with this product over the life of the loan, it's not going to be competitive. The rate after 3 years is above the more mainstream products currently available.

    Up until now, many lenders have been pricing very aggressively with some offering cash incentives for new business. They're doing this at the expense of existing customers who aren't enjoying the same discounts. People might get 1.3% or more discounts at the moment, but there's plenty of people still only getting a mere 0.7%.

    I'm finding that if we go back to many lenders asking them to reprice existing loans, they're not being anywhere near as generous as they will be for new customers. I can site specific examples from ANZ, CBA, Westpac, ING, Macquarie (NAB have actually been very good about this IMO).

    Essentially banks don't treat their existing customers as well as their new ones.

    This suggests something the banks won't tell you. An intro rate might be cheap today, but even if you switch to another product in 3 years when the intro rate expires, you might find your lender is going to give you a good ongoing deal. To get a reasonable deal you'll have to refinance. It's already been stated that may people may not qualify to refinance a few years down the track. You could be stuck with a lousy deal.

    I generally dislike intro rates. They're either a bit dishonest or they give the lender the opportunity to take advantage of the borrowers in the long run.

    I'd like to say the best approach is to simply get a competitive loan from a lender that has a lender that has a reliable track record of being competitive. The problem is I'm starting to thing that this doesn't actually exist.
     
  10. Mitesh Dedhia

    Mitesh Dedhia Well-Known Member Business Member

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    I prefer life of the loan discount too like most people here but intro rates can be attractive especially with high LVR.
     
  11. Rolf Latham

    Rolf Latham Inciteful (sic) Staff Member Business Plus Member

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    The Flexi Product is ok.................. but no offset makes it not suitable for many people.

    We do a bit of this sort of stuff, some lenders do have very good "hook rates" and then make it pretty tough to get out.

    For a PAYG borrower with an 80 % or less lend in a stable proprty market its less of a downside than someone on 95 % lend with large MI to move

    ta

    rolf
     
  12. Rolf Latham

    Rolf Latham Inciteful (sic) Staff Member Business Plus Member

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    So not Bankwest :)

    ta
    rolf
     
  13. Peter_Tersteeg

    Peter_Tersteeg Finance broker and strategist Business Member

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    Obviously not Wankbest. With this ongoing pricing war I'm starting to think the others are heading in a similar direction though.
     
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  14. kamchatsky

    kamchatsky Well-Known Member

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    The IP is at Melbourne. Chances of it being PPOR is 1% given I live in Sydney.

    Yes mine is standard 80% LVR as PAYG. Offset not needed as I have other offsets for my PPOR and other IP under CBA if required.


    Yes I know about this. I've worked out that the breakeven point between the two products would be 4.5 years. After that then I should stay with my existing 4.14% offer. By then though, I would need to have my IO period of 5 years be extended for another 5 years. Not sure if re-application is required. So there is always a chance I need to refinance away if re-application with Westpac is required to extend IO.


    That is what I am thinking about also after say 2.5 years. Would banks be do a servicing assessment for a product switch?