Telling The Whole Story of Interest Rates For Choosing a Home Loan
ARTICLE AT A GLANCE
For most Aussies, their mortgage is their single biggest ongoing financial commitment.
Refinancing to a lower rate can quickly save you thousands of dollars a year in interest – particularly if you’ve already been with your existing lender for quite a while...
However, it’s important to remember that while rates are undeniably important, they do not tell the whole story.
While it can be tempting to jump online and apply for the lowest advertised rate, this does not mean it will be the right fit for your needs or even the cheapest loan for your particular circumstances.
Before leaping into a home loan, it’s important to seek expert advice from a finance broker to ensure you have the full picture. This is usually free and always obligation free.
(And if that great online rate does turn out to be a good fit for you – great!)
In this article, we cover the whole story of interest rates and home loans and things you need to remember and consider.
Why Does NBS Home Loans Publish Weekly Home Loan Interest Rates?
If rates don’t tell the full story, you may wonder why we publish them?
Like many brokers and lenders, we publish our lowest available weekly interest rates via our social media channels.
There are a few reasons why we publish interest rates weekly.
First and foremost, the most common question we get daily is about interest rates!
People generally want to know the lowest available interest rates to ensure they aren’t significantly overpaying on their existing loans or to get a sense of what they can expect if they apply for a new loan.
Secondly, publishing rates regularly can help give a clear picture of interest rate movement over time.
In the current market, where rates are trending upwards, regular rate updates can give you a clearer picture of which direction rates are moving and the speed it is happening at.
Where Does NBS Home Loans Get Current Home Loan Interest Rates From?
NBS Home Loans is a finance broking service.
We do not lend out our own money, but rather we help match clients to banks and lenders that do lend out money.
To offer loans from a large range of lenders, brokers must undertake training to understand each lender’s processes, policies, and products and obtain accreditation with each lender.
At NBS Home Loans, we can offer loans from over 40 different lenders in Australia, including all the major lenders.
We use specialised software that compares all the different loans and rates available from the lenders we are accredited with (also known as our panel of lenders).
In most cases, these rates are the same as can be found on each lender’s website (if you can be bothered to search them all individually!), but in some cases, they may only be available via a broker.
On the flip side, some lenders may not allow their products to be sold via brokers, or we may not have access to that particular lender for various reasons, so the lowest available rate we have access to may not always be the lowest available rate in the Australian market.
Brokers must provide a Credit Guide before giving any advice to a client, and the Credit Guide must clearly show which lenders the broker has access to compare interest rates.
Current Home Loan Interest Rates Don’t Really Tell You The Whole Story
While rates are a useful tool, it’s important to remember that rate is not everything.
Looking at rates alone will not give you the full story or help you decide on the right loan for your circumstances.
Here are some important things to keep in mind:
Most Finance Brokers Have Access To Similar Interest Rates and Home Loan Products
As brokers must obtain accreditations with each lender to compare and use their products, each broker’s panel of lenders will look slightly different. Some brokers may have access to many lenders, while others may only be accredited with fewer lenders.
The broker’s panel of lenders will be disclosed to you in a document called a Credit Guide which the broker must provide before any advice can be provided.
Despite this variance, most brokers tend to have a broad selection of lenders; therefore, most will have access to similar rates and products.
For this reason, choosing a broker based on an advertised rate alone will not likely benefit you as a borrower.
It’s more helpful to find someone experienced who you trust and enjoy working with when seeking a Finance Broker.
It’s Important To Weigh Up Home Loan Interest Rates Against Home Loan Features
A low rate is great, but not if it comes at the expense of features that would save you money in the long run.
As a general rule, basic ‘no frills’ loans tend to attract a lower interest rate but usually don’t offer features such as an offset account or fee-free credit card, or they may limit the amount of extra money you can pay to the loan or the amount you can redraw.
Depending on how you use your loan, it can sometimes be worth paying a slightly higher interest rate to access features that would save you money in the long run.
This all comes down to your circumstances.
NBS Home Loans will take the time to understand what is important to you to help you weigh up features vs rates to help find the right loan for your needs.
Choosing the Right Home Loan Lender Is Just as Important as Choosing a Home Loan
Different lenders offer different services, so it’s important to think about what is important to you in a lender.
Often, the lenders with the lowest rates only offer limited services.
The quickest and easiest way to know for sure is to speak with a reputable finance broker, such as NBS Home Loans.
For example, some lenders offer personal accounts only but do not offer business accounts, which may not suit someone self-employed who prefers to hold all their banking at the same bank as their loan. Others may only offer digital or online services, which may not suit people who prefer to visit a branch.
Some do not offer EFTPOS services, which means you can only access your money via an ATM; you cannot get ‘cash out’ with any purchases, which may make life difficult if you live in an area with limited ATM access.
In addition, some lenders have fast turnaround times when assessing loan applications, while others may slower to respond to loan applications or enquiries.
If time is of the essence, a lender with a slower turnaround time may not work for you, no matter how great their rate is.
Lastly, each lender assesses income differently, which means there can be a large difference in your borrowing capacity with various lenders. (For example, some lenders accept income casual income and second jobs, while others will only accept this income at a reduced interest rate or not at all.)
Sometimes your choice of lender may be limited to those that accept the type of income you are earning and can lend you the funds you require.
Interest rates alone will not tell you if a particular lender offers the services that are important to you or whether your borrowing capacity with that lender is appropriate for your needs.
This is where an experienced finance broker, such as NBS Home Loans, is worth their weight in gold.
Once we know what is important to you, we can help you navigate the lenders that will best meet your requirements and help you weigh these needs up against the interest rates offered by those and other lenders.
Home Loan Interest Rates Are Only a Part of The Total Cost Of Home Loans
The standard interest rate does not tell you anything about additional fees and charges that the loan will attract.
In theory, this is where the comparison rate can be useful.
A comparison rate is designed to help you compare the overall cost of loans at a glance by factoring in additional charges such as annual or monthly fees, establishment fees, discharge (loan closure) fees, and the current interest rate.
However, comparison rates have some limitations: they are calculated on a loan of $150,000 over a 25-year term with monthly payments (a formula set by the Consumer Credit Code), which means they won’t be exactly accurate for your circumstances, and they are based only on current rates which are likely to change over time.
At NBS Home Loans, we will help you understand the interest rate and any fees that will or are likely to affect the overall cost of your loan.
Home Loan Interest Rates Can, and Do, Move Over Time
When interest rates are increasing, as is currently the case, fixed interest rates are usually the first to increase.
When you fix a rate for one to five (1-5) years, you will continue to pay the same interest rate throughout your chosen term regardless of any movement to the variable rate.
Lenders obviously don’t want people paying interest of 3% pa for the next five (5) years if rates are tipped to increase during that time significantly – they would lose too much money doing this.
For this reason, in a period of increasing rates, variable rates for new loans tend to stay slightly lower than fixed rates to encourage people to leave their loans at a variable rate.
It’s important to remember that variable loan interest rates can change throughout the life of the loan, which means any rate increases will usually be passed on to you. This allows the bank to take advantage of any increases in interest rates, as borrowers will pay more in interest to the bank.
This means the low variable interest rate you choose today may change significantly over time; great if rates go down, but not so great if they go up!
Another point to remember is that the variable vs fixed debate is not just a question of interest rates, as fixed loans also tend to come with several restrictions that aren’t appropriate for all clients, such as limits on extra repayments.
At NBS Home Loans, we will help you consider your home loan options and find the most appropriate fit for your circumstances.
As a Home Loan Borrower, You Might Not Even Be Eligible For The Lowest Advertised Home Loan Interest Rate
Often the lowest rates come from the smaller lenders who have fewer overheads than the bigger players.
Unfortunately, not all clients are a good fit for all lenders, and many smaller lenders prefer to stay away from complex loans.
If you are a full-time PAYG employee with long employment history and a good credit record, you will usually have your pick of lenders, including those offering very low rates.
Can I Get A Loan As A Sole Trader?
Many of our clients are recently self-employed, casual workers who have recently started a new job, new arrivals to Australia, or have some past issues with their credit history.
If this is you, in most cases, you can still obtain a loan with a great low rate, but it may not be the absolute lowest rate on the market.
Many lenders also offer discounted rates for lower LVRs (i.e. Loan to Value Ratio: the total amount you need to borrow compared to the property’s value).
For example, suppose you need to borrow 80% or more of the value of your property. In that case, your rate may be higher than someone who has a large deposit or a significant amount of equity and only needs to borrow 50% of the total value of their property.
How Can NBS Home Loans Help You With Your Home Loan?
There is a lot to weigh up when finding the right loan for your needs, and the interest rate is just one piece of the puzzle.
At NBS Home Loans, we will help you consider the issue from all angles to help you find the right fit, whether or not it’s the lowest rate on the market.
NBS Home Loans has written a helpful article for Australians on UNDERSTANDING INTEREST RATES, expanding further on our information here: https://www.nbshomeloans.com.au/understanding-interest-rates-in-australia-in-2022/
At NBS Home Loans, we have over 20 years of lending experience and are passionate about helping first-home buyers into their own homes.
If you have questions about home ownership as a First Home Buyer or want to organise an obligation-free chat about reviewing your home loan, contact us today on 0434 103 326.
For an up-to-date overview of the current rates on offer, visit our Facebook page at facebook.com/NBSHomeLoans
NBS Home Loans. No BS, just great loans and great service.