Why the lowest rate might not be right for you!
We all love a deal, in fact, we all love a great deal, don’t we? Whether it’s for a flight, hotel room, clothes, holiday, restaurants, appliances, gadgets, whatever…we just love them! But in finance, sometimes the best deal, may not actually be right for you.
We hate it when we find out someone else is getting a better deal on the same thing we have. It’s super annoying and can even make us down-right angry!
It’s totally the same with interest rates for our home loans…..surely we should be able to have the same great rate (or better) than our friend, right? Unfortunately, it’s not always that simple.
There’s actually heaps of factors that go into determining your interest rate, and it often depends on you & your situation, such as how much you borrow, how you repay the loan and even your loan-to-value ratio.
So even if you do fit the criteria to get the lowest or hottest rate in the market, there are a bunch of reasons why the lowest rate might just not actually be the right one for you. Here are just a few reasons for you to consider:
You don’t have time to wait.
Often, when banks offer a super low rate, people rush to take advantage of it. That might sound awesome, but when it happens the bank can be totally flooded with applications and they can very quickly develop a big backlog, with not enough staff to assist. This means 2-3 days for an approval can turn into 10-15 days, sometimes even 20-30 days! If you have a property under contract, that waiting time can be super-stressful, and if your application takes too long to be assessed by the bank, you may end up missing out on the property - eekk!So speed-to-approved is an important factor and it’s something we live by here at HoLo.
A minimum loan amount.
This is a bit like getting a bulk discount. If your loan is over a certain amount, lenders often give a lower interest rate (or a bigger discount to their standard rate). Sometimes they have tiered discounts, so the more you borrow, the lower the interest rate, or there is even a minimum loan size, say $700,000, to get access to that amazing interest rate. So if your loan is under the minimum amount, you might not qualify. Sad face.Low loan-to-value ratio.
A bit like the minimum loan amount, a super-sharp rate can often have a minimum loan-to-value (LTV) ratio, like 80%. Often, it can be even less than 80%, like 70% or even 60%. So if you’re looking to buy a home with a 5% or 10% deposit, it’s pretty likely that you’re not going to qualify for those awesome rates, unless you have a bigger deposit (or equity).It’s a basic loan.
A super low rate on a loan can sometimes be a basic loan and have no features, like no offset account. This might work for you if it’s an investment property where you are just paying the minimum loan repayment, but we often want more when it’s for our home. Offset accounts are one of the most commonly asked for features on a home loan, so it’s worth understanding whether that feature is important for you.It may have a bunch of fees.
You might get a super low rate, but the lender might have foregone some interest and replaced it with some monthly or annual fees: an application fee, valuation fees or even a settlement fee to compensate for giving you that low, low rate. Those fees can add up, so it’s worth comparing (which is why we show the Comparison Rate).Your situation.
Banks have lots and lots of rules about the circumstances of each client they consider - it’s known as their lending (or credit) policy. These policies vary for each bank; and can cover things like location, use or size of the property, length or type of your employment, size of your deposit, how your income is split (base, bonuses, commissions & allowances etc.) and even your occupation. Sometimes your situation just doesn’t fit that bank’s requirements. Remember: it’s not you, it’s them.Honeymoon will soon be over, baby.
Yep, we just paraphrased the Cruel Sea. But it’s true! Sometimes the super-low rate will be a honeymoon rate; a really really good rate for the first 1-2 years, which will jump up at the end of the honeymoon period. Sometimes the rate can jump up by 1% or even more, which they don’t always tell you about when you sign up, but it kinda takes the shine off the super low rate, doesn’t it?You like a bit of service.
Sometimes, when lenders are offering a great rate, it’s because they don’t offer much after-sales service or their technology isn’t quite up to scratch yet. Or worse still, they do offer some service, but it’s just not that good! So they entice you with a low rate. Buyers beware!
So that’s just a few reasons why the lowest rate may not be right: you don’t have time to wait, prefer some specific features or just want a bit of service. If we all did everything in life that was the lowest price, then we’d never go to awesome restaurants, never go on fantastic holidays or only fly discount airlines. Which we all know just isn’t the case.
If you want to know more or get started, just click the link below to talk to our expert team!
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