How to save thousands on your home loan this Christmas Season
The economy might be sluggish or even on the nose, but borrowers have rarely had it so good. Now is a great time to review your home loan. Home buyers have not had it so good in a very long time. Most lenders now offer variable home loans below 5% – staggeringly low rates not seen consistently since the 1950s.
There is a bank which is offering 4.39%, the lowest of 65 lenders with rates under 5%. Average home loan rates have been hovering around the 5.2% mark since last year, which they have not done since 1970, according to Reserve Bank data.
The average standard variable rate was 6.0% only a few months ago, the lowest in five years. The fierce interest rate competition at present is an early Christmas Gift for borrowers.
We haven’t seen challenger lenders competing this hard against the big four banks and each other since before the global financial crisis. We believe that the average variable home loan rate is 5.28%. The big banks are not keeping up. The average standard variable rate with the big four is 5.38% and many Aussies can be helping themselves to significant savings elsewhere.
Caution Should be Exercised
The potential to save thousands certainly sounds like good news for borrowers, but reality is falling home loan rates reflect the low demand in the housing market and a weak economy. Lenders have lots of available money but not the take, so they’re chasing business.
We would interpret low rates as a warning sign that rates will rise in future, possibly much faster than property values. So don’t borrow more than you can afford to repay at a much higher rate. Right now presents a terrific opportunity, but prudent purchasers should be mindful that this is not going to last forever.
Fix for certainty
Given that rates are likely to rise in the long term, we suggest negotiating a fixed rate if you want certainty. If you can lock down on a fixed interest loan for under 4.8% for a length of time, it’s very good money. Remember that you do lose the flexibility you have with variable rate so make sure you know all the pros & cons.
Don’t take rates at face value
Never take an advertised rate as gospel. A low rate often comes with terms and conditions. Make sure you read the fine print. It might be for a short term, and then it jumps up or worse!
Research & Get advice before you jump ship
With second-tier lenders offering such low rates, you are well placed to get a better deal. Do your research and get your mortgage broker to do the homework and do the deal for you. A second opinion may make all the difference!