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Low new mortgage rate becomes higher over time

Discussion in 'Property Finance' started by Burramys, 3rd Mar, 2016.

  1. Burramys

    Burramys Well-Known Member

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    I have an IO mortgage with CUA, taken out in July 2015. The rate was good to start but CUA has bumped it up, to 4.67%. A friend is looking at CUA, and was offered 4.14% or so. There was no mention of a honeymoon rate. It seems that CUA may be getting people to apply with a low rate and then increasing it over time.

    Is this correct, and does anyone know of other lenders doing this? TIA.
     
  2. Terry_w

    Terry_w Solicitor, Finance Broker, CTA Business Member

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    Heaps doing it. Often cheaper rates for new customers compared to existing.
     
    Tim86 likes this.
  3. Jamie Moore

    Jamie Moore MORTGAGE BROKER - AUSTRALIA WIDE Business Member

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    If it's an investment loan it's probably had a couple of rate hikes outside the RBA. I don't know what CUA has done but most banks increased IP rates and then later increase variable rates (so two increases in a short time).

    Your friend might be taking out a ppor loan which should have a lower rate than investment.

    Cheers

    Jamie
     
  4. Burramys

    Burramys Well-Known Member

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    Thanks for the above advice. I was unaware that the increase as I described was so widespread. My friend June was looking to refinance an IP mortgage, currently 5.67%, which is 100 basis points more than I am paying at present. Even if the new mortgage is stepped up over time she will still be in front, and will recover her exit fees within a few months. Given the higher lending requirements from late 2015, I would expect higher IP rates compared to those for a PPOR. Now that the higher lending requirements have been bedded down, will the IP-PPOR rate gap remain more or less the same?


    When looking for a new lender I saw that one lender offered about 50 basis points if I used the IP and my PPOR as security. Are you suggesting that refinancing by getting a mortgage on the PPOR for the IP would on balance lead to a lower rate? This can only be done once, and I'm not keen on cross-collateralisation. An easy solution is elusive.


    We are both after a good rate, IO and 100% offset, nothing else. The one I’m looking at seems best.
     
  5. Rolf Latham

    Rolf Latham Inciteful (sic) Staff Member Business Plus Member

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    Crossing ppor and ip for rate outcomes can have a sting later on.

    Obviously for some people the $ saved can't be missed which is why lenders like amp et al are playing such games to claw back market share.

    Ta

    Rolf
     
  6. Jess Peletier

    Jess Peletier Mortgage Broker - Australia Wide Business Member

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    It's not worth x-coll for a low rate - there are low rates out there with out it. May not AS low, but better when you look at the big picture and what you're actually getting for the small extra.
     
  7. Corey Batt

    Corey Batt Finance Strategist Business Plus Member

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    There's options out there which are comparable and *don't* require you to sell your soul via cross coll - I'd rather not have my lending with an institution which tries to tie me up with a bait offer.
     
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  8. God_of_money

    God_of_money Well-Known Member

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    I know that most of the brokers here rant about x-coll to save the $$. Can any broker be able to get 3.99% for both IP and PPOR without x-coll? Evidence pls.. not ranting..
     
  9. Redom

    Redom Mortgage Broker Business Member

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    Unfortunately its common practice for new borrowers to get cheaper rates than existing customers. Most lenders in the market place do this to some degree, with some particularly bad (BW come to mind).

    It partly explains the importance of reviewing mortgages over time and finding a more suitable lender than 'flash rate of the week' - over a few month there'll likely be a better deal. Transition costs ($ and admin costs) generally mean its better to find suitable options for the medium/longer term if possible.
     
  10. Corey Batt

    Corey Batt Finance Strategist Business Plus Member

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    Sure - we can write 3.99% 3 year fixed for both PPOR and IP's. No cross coll required at all.
     
  11. God_of_money

    God_of_money Well-Known Member

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    The cost saving is quite signicant when u have >$2.5 millions loan. 0.1% off translated to $2500/year. Average difference is about 0.4-0.5% hence $10k/year. Not a new borrower!

    Corey, I thought that most brokers rants about fixed rates?? flexibility, penalty cost, crystal ball on future rates, trying to beat banks etc etc.
     
  12. Hanison

    Hanison Well-Known Member

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    God of money.

    That's a good one.
     
  13. D.T.

    D.T. Adelaide Property Manager Business Member

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    Sure you can, but why would you want to?
    Pretty sure the interest rate doesn't even feature in the top 5 important parts of getting a loan.
     
  14. Rolf Latham

    Rolf Latham Inciteful (sic) Staff Member Business Plus Member

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    Most material written on xcoll here is well thought out and much of it based on client specific experience.

    I dont see much loud, angry or illogical diatribe on xcoll.

    If someone wants to save some $ on rates by using xcoll where available, and they have evaluated the pros and cons for their models , - thats all good, its free market.

    ta
    rolf
     
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  15. jpcashflow

    jpcashflow Well-Known Member Business Member

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    What you say is true... this is why going with a lender should never be rate driven.
     
  16. Marty McDonald

    Marty McDonald Mortgage broker

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    Who do you have this with may we ask? Im sure we can find some problem with it that you haven't thought about yet. Most likely is unsecure funding lines in time of market volatility and or bait and switch over time ala the OP
     
  17. God_of_money

    God_of_money Well-Known Member

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