As wonderful as it may be to get a new home, the process can be challenging. For many, the most difficult step involves determining the best home loan for your lifestyle.
Home loan interest rates seem opaque to many, but it doesn’t need to be that way. By following this guide, you’ll be prepared to make the best choices on your journey to a new home.
Home Loan Rate Basics
Lenders set their interest rates according to several factors, including the amount of risk they take in giving money to a borrower. The less likely the borrower is to pay back the money, the higher the risk and the higher the interest rate.
But the baseline interest rate comes not from an individual lender, but from the Reserve Bank of Australia. Since 2016, the RBA has set the interest rate at the very low 1.5%, all the way down to 0.10% in 2021, which helps stimulate the economy.
Different Loan Rate Types
When it comes to interest rates, loans fall into two categories.
With a variable interest rate home loan, your interest rate can rise or fall according to the lender’s desires. These types of loans often have their benefits, but they require the buyer to be aware of lending trends.
A fixed-interest rate home loan does not change throughout your loan. While these loans offer protection against rate raises, you will not see the benefit if the RBA lowers rates further.
What Can I Do?
Simply put, the best way to get a good home loan rate is to show the lender that you’re not a risk combined with the full & unfiltered truth about your financial position. If they determine that you’ll likely pay back the amount you borrowed in a timely manner, then they’ll give you a lower rate.
To show that you’re low risk, provide the following to your lender:
- Evidence That You’ve Paid Past Debts “A record of reliably paying off your debts and avoiding default fills a lender with confidence, making them less likely to charge a higher interest rate.”
- Proof of Steady Income “A lender doesn’t deem you a risk or good investment based on their personal feelings. They make an informed decision about the money available to you, as proven by the income you receive.”
- Evidence of Low Debts “If a lender has to compete with others to get their money back from you, then they’ll consider you a risk. The fewer debt obligations you already have, the more likely you are to get a low interest rate.”
- Borrow for a Short Term “The longer a loan term, the higher the risk, and thus the higher the interest rate. If you borrow for a shorter term, then the lender will see you less of a risk and will give you a lower interest rate.”
Still Have Questions?
Our loan calculator can help you figure your best options. And if you still have questions, our representatives are here to help. Contact us today!
