Why is it so hard to work out what my Interest Rate is and what it should be?
Douglas Piening 23/3/2018
I get clients all the time asking me this question. The answers are varied and will depend on considerations such as:
How long have you had the loan? If you haven’t had your loan re-priced regularly there is a chance that your discount or rate no longer stacks up. Banks offer Specials from time to time to attract new customers and the borrowers who take up these offers can sometimes get better rates than loyal long-term borrowers.
What is the loan for? If the loan is for an investment purpose, the rates will tend to be higher than if they are in relation to the home you live in. This has been a marked change in the past few years, so borrowers need to check that their Home Loan is classified correctly. If you have an Owner-Occupied loan classified as Investment (and I did for a while) you may be paying a premium.
Is the loan repayment Interest Only or Principal & Interest? Banks are providing rate incentive to pay off principal. Rates for Principal and Interest repayments are sometime half a percent or even more lower than the corresponding Interest Only rate, but it doesn’t necessarily mean you should switch straight away.
Higher Interest only payments may be preferable where you have personal (non tax-deductible) debt to pay down so it is always best to speak with your Financial Advisor and your Broker to work out the best plan of attack.
It is always tempting to be swayed by a headline interest rate. In Supermarkets they are called “loss leaders”. The rate you should have will depend on getting the right loan to suit your circumstances and the property you are borrowing for.
It is also wise to check for revert rates, or the rates once any initial offer expires. It might be tempting to enjoy a good rate for the first two years, however there may be a shock to your budget if your repayments sky rocket from there.
Sounds complicated? It can be and there is often no simple answer. If you have concerns about your current rate it is always best to speak to your Broker
Douglas Piening is a Mortgage and Finance Broker with Piening Financial Solutions and is passionate about providing advice you can trust. Whether it’s buying a home, refinancing a loan, investing, building or renovating, Doug brings a wealth of knowledge and expertise to assist with your lending needs.
You can contact Doug at firstname.lastname@example.org or (m) 0408 671 524.
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This information is of a general nature only and does not constitute professional advice. You should always seek professional advice in relation to your particular circumstances.