Spring has sprung in Australia, and it’s not just the weather that’s warming up. The mortgage rate war is reaching boiling point, with a new lowest fixed home loan rate of 1.90 per cent breaking records from Reduce Home Loans.
This new lowest rate comes just in time for the spring property buying season, with housing values becoming more affordable in recent months.
CoreLogic figures for August found that housing values have dipped for the fourth month in a row, edging 0.4 per cent lower. The biggest decreases were in Melbourne (1.2 per cent) and Sydney (0.5 per cent), bringing the ability to afford property in the biggest capital cities within reach for some Aussies.
If you’re considering buying a property to live in you may be wondering how you can nab one of the new lowest rates in the home loan market.
Here is what you need to know if you want to grab a low rate home loan.
1. Fix for peace of mind
In periods of decreasing cash rates, lenders will historically offer lower variable rates. This is because variable home loan rates are linked to the Reserve Bank of Australia (RBA)’s cash rate, which currently sits at 0.25 per cent – its lowest rate in history. Fixed rates, however, are funded by global bond markets, which mean they generally come with higher interest rates.
Reduce Home Loans however broke records again, cementing its position as a leading low-rate lender, by offering a 1.90 per cent fixed home loan for owner-occupiers paying principal and interest.
For home loan customers needing some certainly back in their life, a fixed home loan could provide that peace of mind. The RBA has held the cash rate for a few months now with some lenders continuing to pass on savings to their variable rate customers, but not all. If you’re worried about being caught out by a rising cash rate then fixing could be a good option for you.
2. Save a bigger deposit
Gone are the days of buying a home and getting a mortgage without a tiny deposit. Nowadays, home loan lenders typically prefer to add customers to their books who have squirreled away a larger deposit – ideally 20 per cent or more. This showcases that you are responsible with your finances and also helps you to avoid paying lenders mortgage insurance – an additional cost on top of the loan.
In fact, Reduce Home Loans’ new 1.90 per cent home loan has a loan-to-value ratio of 80 per cent. Meaning, it is only available to buyers who’ve saved a deposit of at least 20 per cent.
Asking young Australians to save a 20 per cent deposit in a city where medium house prices are in the million-dollar range is a hard ask. Thankfully, falling property prices, as illustrated by the above CoreLogic figures, means that keen buyers may finally have an opportunity to snatch up a home in their budget, and get a rock-bottom interest rate too.
3. Avoid unnecessary spending
When you apply for a home loan, the lender will go through your bank statements for the last few months to tally up your regular expenses. These regular expenses go against your projected repayment capabilities, whether you plan on altering your budget once you get a mortgage or not.
Do you have a bad habit of ordering takeaway food six times a week? Are you addicted to Afterpay and constantly buying new clothes? A lender has the right to assume that you will do this for the life of your potential loan and subtract that regular expense from your total borrowing potential.
Meaning, hundreds of dollars may be subtracted from what the lender believes you can afford to repay on a home loan. This generally goes hand in hand with being offered a higher mortgage rate, as the lender does not see you as reliable with your finances. This is why it’s worth considering cutting out these kinds of expenses in the lead up to applying for a home loan.