Stop looking for the LOWEST interest rates

Discussion in 'Loans & Mortgage Brokers' started by Property Twins, 1st Sep, 2019.

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  1. Property Twins

    Property Twins Mortgage Brokers & Buyers Agents Business Member

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    Hear every other week from clients and to be clients...

    My friend is paying 3.xx interest rate, so why am I on 3.yy ?

    There are so many factors that influence lender pricing.

    So before you compare what your friends are paying (or think you SHOULD be paying), consider these:

    1. Is your property your home or investment?
    > Investments are priced harsher compared to owner occupied properties

    2. Are you paying Principal & Interest (P&I) or Interest Only (IO)
    > Interest Only properties are priced harsher compared to owner occupied properties
    (thanks to the APRA regulations in 2014/2015! Lenders found a way to charge more!)

    3. If it's an existing property with a lender, did you pay Lenders Mortgage Insurance (LMI) or not?
    > Lenders know when you have paid LMI, you don't have too many options (until the property has grown significantly)

    4. If it's a new purchase you're doing, the lenders think of these factors
    > Are you / your partner in probation or changing jobs?
    > Are you / your partner in a new casual job
    > Do you run a business or on an ABN - what have the last 2 years of income been?
    > Are you living at home? Or are you renting?
    > What interest rates are you paying on your current properties? (various lenders have various floor rates and what you are assessed with one lender may differ from another lender)

    5. Are you going to a bank lender or non bank lender?
    > When you have exhausted your borrowing capacity with bank lenders (provided you started selecting lenders in the right order and structures in the first place)... non bank lenders is where you would go to
    > When you go lenders of last resort - of course they would charge a higher interest rate (do you want the money or not? of course they will charge other fees and charges such as for valuations, application fee etc

    6. If you're buying a home - will you be investing in the future (may not matter today, but this will influence your financial trajectory in 2, 3, 5 years)
    > Some banks are more friendly than others to equity releases (especially if you are paying LMI)
    > Some banks have more flexible post settlement processes (so you can pay off your home loan faster and ensure your future savings are converted to tax deductible funds - consider debt recycling strategy)

    7. The rate you receive (with the lender you fit in considering points 4 in particular above), will depend on the lender appetite around discounts they are giving this week
    This may be entirely different next week. And this is also dependent on:

    > Loan to value ratio (LVR) (are you doing an 80% LVR, 88% or 90% LVR?)
    > Your loan amount - $350k loan will clearly have a lower discount on the rate than a $1million loan
    > How much existing lending do you have with the lender? Economies of scale can drive discounts you receive, unless the lender does the same rate for all clients based on the LVR

    8. Are you going for a basic loan or a packaged loan?
    Yes basic might get you a great rate on the surface, however, what is the cost to you mid to long term?

    Tip: Make sure you think through the decision making process, before you commit to a lender and not just throw a dart at the board. Unless of course, you don't care about your financial future and are okay to pay the price later
     
    Last edited: 1st Sep, 2019
  2. shorty

    shorty Well-Known Member

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    Legitimate question IMO. As someone who has hit the servicibility wall, my only consideration is the rate as long as I can have an offset for my PPoR.

    A lower rate helps me pay down debt quicker and borrow again sooner.
     
  3. Property Twins

    Property Twins Mortgage Brokers & Buyers Agents Business Member

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    Legitimate yes and a point of education too.

    Hitting serviceability wall means more likelihood of going to lenders of last resort which by default charge more for the access to funds.
     
  4. Paul@PFI

    [email protected] Tax Accounting + SMSF Business Plus Member

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    When preparing a tax return we see many people who refinance at high rates and with substantial LMI and fees often to access a very small amount of equity or to maintain IO rather than face the prospect of P&I

    Rate alone isnt always a great indicator.
     
  5. kierank

    kierank Well-Known Member

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    I have always viewed the Rate as the bank’s risk rating of our financial situation.

    The higher the rate, the higher risk the bank perceives us to be.
     
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  6. bunkai

    bunkai Well-Known Member

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    I think this is a good overview but even considering these factors there well may be a saving.

    In my case, based on comparable offer - the saving is about half a percent. No doubt you need to stay on top of it as rates move but an easy tens of thousand a year saving over a reasonably sized portfolio.
     
  7. Shady

    Shady Well-Known Member

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    What are they doing on 3.xx%? your friend should shop around, it should be 2.xx% now :D


    Sorry, couldn't resist
     
  8. fwmonger

    fwmonger Active Member

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    There is one thing that you missed here and in my opinion is the most important thing -

    9. How hard can you bargain?
    > Get finance pre-approved (not conditionally but after full assessment) by multiple lenders even before you start looking
    > Once you have found the property and signed the contract, get them to compete for your business
    > Use finance brokers as they are pretty good in getting lower rates especially when they know that you are also talking to another broker

     
  9. DaveM

    DaveM Adelaide Buyers Agent & KFC Strategist Business Member

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    Good way to smash your credit file into swiss cheese
     
  10. Tattler

    Tattler Well-Known Member

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    I am at a position where I am not looking to buy more houses, so yes I am looking at lowest rate for the same type product as I can, as long as I can service it. Why not? It can save thousands per year for me, and tens of thousands for someone else....
     
  11. fwmonger

    fwmonger Active Member

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    Makes no difference to your credit file. Its just an enquiry and banks know you're shopping around. Thats all!
     
  12. varun80

    varun80 Active Member

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    So what is a decent interest only investment loan rate (both fixed and variable) what one should expect to pay in these market conditions? Assume borrowing by giving 20% deposit
     
  13. Morgs

    Morgs Well-Known Member Business Member

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    I'm afraid there is no benefit from having multiple pre-approvals with different lenders. It will have an adverse effect on your credit score.

    Some lenders will even auto decline your application is you've got more than a certain amount of queries within a certain time.

    Views below are not my own but for reference:
    6 things you may not know about home loan pre approvals
    Do mortgage pre-approvals affect your credit score?
    Pre-Approvals - Can You Hurt Your Credit Score By Applying For Multiple?
    Can A Pre-Approval Affect My Credit Score?
     
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  14. Lindsay_W

    Lindsay_W Well-Known Member

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    Playing banks (and brokers) against each other to "compete" for your business is not the best approach at all - simply get a good mortgage broker and there's no need to shop around and apply at multiple banks or multiple brokers.
    It's a bad idea as per others responses regarding multiple credit inquiries on your file and it's a fact that Banks absolutely do care if you have multiple applications on your credit file. Plus your credit score decreases with every application, whether you proceed with the loan or not.
     
  15. Lindsay_W

    Lindsay_W Well-Known Member

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    Between 3.2% and 4% assuming you qualify
     
  16. thydzik

    thydzik Well-Known Member

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    If you are looking to refinance an existing loan, I can't see how looking for the lowest interest rate shouldn't be your number one priority.

    You have already answered all those questions when setting up the loan.
     
  17. Lindsay_W

    Lindsay_W Well-Known Member

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    a simple example
    If you want the lowest rate it's likely to be a basic product - so if you need an offset account but the product with the lowest rate doesn't have an offset account it's pointless just looking at the rate, you need to look at the whole product and lender policy, serviceability etc.
     
  18. Sackie

    Sackie Well-Known Member Premium Member

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    Doing that is a one way ticket to investment suicide.
     
    Last edited: 20th Dec, 2019
  19. Rolf Latham

    Rolf Latham Inciteful (sic) Staff Member Business Plus Member

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    that be your experience, all good.

    20 years and near a bill in settled loans says otherwise

    Black Box algos use big data, not common sense.

    Multiple enquiries for the same amount in a short time shortens your score ............


    At 80 LVR its less of an issue, but will still hair cut your score, above 80 its a silly thing to do

    rolf

    Less
     
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  20. Peter_Tersteeg

    Peter_Tersteeg Finance broker and strategist Business Member

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    I have an amusing story for you...

    Client had a lot of serviceability and a huge amount of cash. I figured out that he could confidently buy 4 properties of about $600k each, which is what he wanted to do. For several reasons the 4 properties would be spread across two lenders. The first two on 90% LVR to preserve cash for later, the second two at 80% for optimal servicing.

    Month 1, he buys a property with bank A. No problems.
    Month 2, he buys a property with bank A. No problems.
    Month 2.5, he buys a property with bank B. No problems.

    Month 3, he buys another property, we apply to bank B. Despite still comfortably ticking all the boxes, the application is immediately declined. Within seconds of submission, obviously an automated decision.

    The reason given by the lender was that his credit score was quite low. When we checked before purchasing the first property, 3 months prior, his score was quite high.

    Bank B already knew the full story, it was all laid out, they know the history because there were a part of it. There was no chance to appeal, the lender decided that an auto-decline couldn't be overturned until his credit score repaired itself (which takes time).

    The problem was solved by going to a third lender lender that didn't credit score, but it came at a cost.

    Your credit score isn't a problem, until it does become a problem.