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Mortgage featured stories

Should I apply for the loan with the lowest interest rate?

Mortgage Broking
Share
I was staggered recently to read an article by a professional finance journalist, in a daily publication, stating that borrowers should refinance their loans to those financial institutions with the lowest interest rates.
For obvious reasons I won’t name the journalist or their publication, but what concerned me the most is the article did not consider any loan costs outside of the interest rate. This is despite the significant effort made by governments, mortgage industry associations, mortgage brokers and even lenders in providing consumers with more and more details on total loan costs over recent years. That is like saying I should buy a $45 dollar shirt with postage & handling of $10 online as it is cheaper than paying $50 in the local store. Sure the purchase price is cheaper online, but the total cost to purchase the shirt is greater! To make my point further let’s consider two loan options for a $250,000 loan repaid monthly over 25 years, both with variable interest rates and no application fees. For the point of the exercise we will assume all other valuation and documentation costs were the same and interest rates remain stable. Option 1: The first has a low interest rate of 4.59% per annum and an annual fee of $500. Option 2: The second has a higher interest rate of 4.75% per annum, and no ongoing fees. At first review Option 1 looks a lot more attractive. Those amongst us with a good grip on the numbers would be able to complete some simple calculations and note at the end of the first year both loans have cost a similar amount in terms of interest cost and fees. But what about over the full term of the loan? The below table provides an indicative summary of total costs over 25 years assuming only minimum repayments are made and interest rates remain stable:
Option 1 Option 2
Total Interest Paid (approx) $170,714.92 $177,588.02
Total Annual Fees $ 12,500.00 $0.00
Total Interest & Annual Fees $183,214.92 $177,588.02
In this example the cheaper interest rate of Option 1 has actually cost us $5,629.90 more over the term of the loan. Many would argue that the difference over the full term of the loan is not significant but I wonder whether in real life the annual fee may be subject to some increases over the next 5, 10 or 20 years? When assessing interest rates we also need to consider many other options before considering what is a good deal, such as:
  • What are the service levels and policies of the two lenders? Will one be more difficult to deal with than the other?
  • What has been the historical performance in interest rates for both lenders? Is the cheaper option just a short term discount?
  • What are the other costs and fees I may incur over the terms of the contract?
  • If I am refinancing, what are the costs to exit my existing contract?
  • If I want to transact at the same institution my loan is at, what are their transactions fees? How convenient is access and is it important to have a branch nearby? What is their internet banking like?
  • What are the other features of the loan? Can I redraw additional payments or have a loan set off account at no additional cost?
  • Am I comfortable dealing with that lender? Would I prefer to deal with a lender who does more in my local community?
Depending on your personal circumstances you may have other important factors that need considering. So should you try to get the lowest interest rate you can? Most definitely! But keep it in context that interest is only one cost of your loan and you need to consider all fees and costs, along with other aspects important to you before making a decision. The lowest interest rate loan isn’t necessarily the lowest cost option! However, assessing all aspects can be confusing. This is where consulting your local Loan / Mortgage Broker or Credit Adviser can provide assistance in working through the options on offer and help you establish what will suit your personal circumstances.

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Is a tree or sea change on your horizon? Fresh air, no bumper-to-bumper traffic and more affordable home prices. There’s plenty of appeal in regional living, including a chance to potentially reduce your home loan.

Is a tree or sea change on your horizon?

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Is a tree or sea change on your horizon? Fresh air, no bumper-to-bumper traffic and more affordable home prices. There’s plenty of appeal in regional living, including a chance to potentially reduce your home loan.

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Is a tree or sea change on your horizon? Fresh air, no bumper-to-bumper traffic and more affordable home prices. There’s plenty of appeal in regional living, including a chance to potentially reduce your home loan.

Why three-in-four Aussies turn to a broker for home loan help

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Why three-in-four Aussies turn to a broker for home loan help You might have seen a headline or two about a particular big bank being at war with brokers. Nothing could be further from the truth. Our mission is – and always will be – putting you first. That’s why three in every four borrowers now come to us for help.

Why three-in-four Aussies turn to a broker for home loan help

News
Why three-in-four Aussies turn to a broker for home loan help You might have seen a headline or two about a particular big bank being at war with brokers. Nothing could be further from the truth. Our mission is – and always will be – putting you first. That’s why three in every four borrowers now come to us for help.

Why three-in-four Aussies turn to a broker for home loan help

News
Why three-in-four Aussies turn to a broker for home loan help You might have seen a headline or two about a particular big bank being at war with brokers. Nothing could be further from the truth. Our mission is – and always will be – putting you first. That’s why three in every four borrowers now come to us for help.

Mortgage featured stories

Should I apply for the loan with the lowest interest rate?

Mortgage Broking
Share
I was staggered recently to read an article by a professional finance journalist, in a daily publication, stating that borrowers should refinance their loans to those financial institutions with the lowest interest rates. For obvious reasons I won’t name the journalist or their publication, but what concerned me the most is the article did not consider any loan costs outside of the interest rate. This is despite the significant effort made by governments, mortgage industry associations, mortgage brokers and even lenders in providing consumers with more and more details on total loan costs over recent years. That is like saying I should buy a $45 dollar shirt with postage & handling of $10 online as it is cheaper than paying $50 in the local store. Sure the purchase price is cheaper online, but the total cost to purchase the shirt is greater! To make my point further let’s consider two loan options for a $250,000 loan repaid monthly over 25 years, both with variable interest rates and no application fees. For the point of the exercise we will assume all other valuation and documentation costs were the same and interest rates remain stable. Option 1: The first has a low interest rate of 4.59% per annum and an annual fee of $500. Option 2: The second has a higher interest rate of 4.75% per annum, and no ongoing fees. At first review Option 1 looks a lot more attractive. Those amongst us with a good grip on the numbers would be able to complete some simple calculations and note at the end of the first year both loans have cost a similar amount in terms of interest cost and fees. But what about over the full term of the loan? The below table provides an indicative summary of total costs over 25 years assuming only minimum repayments are made and interest rates remain stable:
Option 1 Option 2
Total Interest Paid (approx) $170,714.92 $177,588.02
Total Annual Fees $ 12,500.00 $0.00
Total Interest & Annual Fees $183,214.92 $177,588.02
In this example the cheaper interest rate of Option 1 has actually cost us $5,629.90 more over the term of the loan. Many would argue that the difference over the full term of the loan is not significant but I wonder whether in real life the annual fee may be subject to some increases over the next 5, 10 or 20 years? When assessing interest rates we also need to consider many other options before considering what is a good deal, such as:
  • What are the service levels and policies of the two lenders? Will one be more difficult to deal with than the other?
  • What has been the historical performance in interest rates for both lenders? Is the cheaper option just a short term discount?
  • What are the other costs and fees I may incur over the terms of the contract?
  • If I am refinancing, what are the costs to exit my existing contract?
  • If I want to transact at the same institution my loan is at, what are their transactions fees? How convenient is access and is it important to have a branch nearby? What is their internet banking like?
  • What are the other features of the loan? Can I redraw additional payments or have a loan set off account at no additional cost?
  • Am I comfortable dealing with that lender? Would I prefer to deal with a lender who does more in my local community?
Depending on your personal circumstances you may have other important factors that need considering. So should you try to get the lowest interest rate you can? Most definitely! But keep it in context that interest is only one cost of your loan and you need to consider all fees and costs, along with other aspects important to you before making a decision. The lowest interest rate loan isn’t necessarily the lowest cost option! However, assessing all aspects can be confusing. This is where consulting your local Loan / Mortgage Broker or Credit Adviser can provide assistance in working through the options on offer and help you establish what will suit your personal circumstances.

More Stories

Is a tree or sea change on your horizon?

News
Is a tree or sea change on your horizon? Fresh air, no bumper-to-bumper traffic and more affordable home prices. There’s plenty of appeal in regional living, including a chance to potentially reduce your home loan.

Is a tree or sea change on your horizon?

News
Is a tree or sea change on your horizon? Fresh air, no bumper-to-bumper traffic and more affordable home prices. There’s plenty of appeal in regional living, including a chance to potentially reduce your home loan.

Is a tree or sea change on your horizon?

News
Is a tree or sea change on your horizon? Fresh air, no bumper-to-bumper traffic and more affordable home prices. There’s plenty of appeal in regional living, including a chance to potentially reduce your home loan.

Why three-in-four Aussies turn to a broker for home loan help

News
Why three-in-four Aussies turn to a broker for home loan help You might have seen a headline or two about a particular big bank being at war with brokers. Nothing could be further from the truth. Our mission is – and always will be – putting you first. That’s why three in every four borrowers now come to us for help.

Why three-in-four Aussies turn to a broker for home loan help

News
Why three-in-four Aussies turn to a broker for home loan help You might have seen a headline or two about a particular big bank being at war with brokers. Nothing could be further from the truth. Our mission is – and always will be – putting you first. That’s why three in every four borrowers now come to us for help.

Why three-in-four Aussies turn to a broker for home loan help

News
Why three-in-four Aussies turn to a broker for home loan help You might have seen a headline or two about a particular big bank being at war with brokers. Nothing could be further from the truth. Our mission is – and always will be – putting you first. That’s why three in every four borrowers now come to us for help.

Mortgage featured stories

Should I apply for the loan with the lowest interest rate?

Mortgage Broking
Share
I was staggered recently to read an article by a professional finance journalist, in a daily publication, stating that borrowers should refinance their loans to those financial institutions with the lowest interest rates. For obvious reasons I won’t name the journalist or their publication, but what concerned me the most is the article did not consider any loan costs outside of the interest rate. This is despite the significant effort made by governments, mortgage industry associations, mortgage brokers and even lenders in providing consumers with more and more details on total loan costs over recent years. That is like saying I should buy a $45 dollar shirt with postage & handling of $10 online as it is cheaper than paying $50 in the local store. Sure the purchase price is cheaper online, but the total cost to purchase the shirt is greater! To make my point further let’s consider two loan options for a $250,000 loan repaid monthly over 25 years, both with variable interest rates and no application fees. For the point of the exercise we will assume all other valuation and documentation costs were the same and interest rates remain stable. Option 1: The first has a low interest rate of 4.59% per annum and an annual fee of $500. Option 2: The second has a higher interest rate of 4.75% per annum, and no ongoing fees. At first review Option 1 looks a lot more attractive. Those amongst us with a good grip on the numbers would be able to complete some simple calculations and note at the end of the first year both loans have cost a similar amount in terms of interest cost and fees. But what about over the full term of the loan? The below table provides an indicative summary of total costs over 25 years assuming only minimum repayments are made and interest rates remain stable:
Option 1 Option 2
Total Interest Paid (approx) $170,714.92 $177,588.02
Total Annual Fees $ 12,500.00 $0.00
Total Interest & Annual Fees $183,214.92 $177,588.02
In this example the cheaper interest rate of Option 1 has actually cost us $5,629.90 more over the term of the loan. Many would argue that the difference over the full term of the loan is not significant but I wonder whether in real life the annual fee may be subject to some increases over the next 5, 10 or 20 years? When assessing interest rates we also need to consider many other options before considering what is a good deal, such as:
  • What are the service levels and policies of the two lenders? Will one be more difficult to deal with than the other?
  • What has been the historical performance in interest rates for both lenders? Is the cheaper option just a short term discount?
  • What are the other costs and fees I may incur over the terms of the contract?
  • If I am refinancing, what are the costs to exit my existing contract?
  • If I want to transact at the same institution my loan is at, what are their transactions fees? How convenient is access and is it important to have a branch nearby? What is their internet banking like?
  • What are the other features of the loan? Can I redraw additional payments or have a loan set off account at no additional cost?
  • Am I comfortable dealing with that lender? Would I prefer to deal with a lender who does more in my local community?
Depending on your personal circumstances you may have other important factors that need considering. So should you try to get the lowest interest rate you can? Most definitely! But keep it in context that interest is only one cost of your loan and you need to consider all fees and costs, along with other aspects important to you before making a decision. The lowest interest rate loan isn’t necessarily the lowest cost option! However, assessing all aspects can be confusing. This is where consulting your local Loan / Mortgage Broker or Credit Adviser can provide assistance in working through the options on offer and help you establish what will suit your personal circumstances.

More Stories

Is a tree or sea change on your horizon?

News
Is a tree or sea change on your horizon? Fresh air, no bumper-to-bumper traffic and more affordable home prices. There’s plenty of appeal in regional living, including a chance to potentially reduce your home loan.

Is a tree or sea change on your horizon?

News
Is a tree or sea change on your horizon? Fresh air, no bumper-to-bumper traffic and more affordable home prices. There’s plenty of appeal in regional living, including a chance to potentially reduce your home loan.

Is a tree or sea change on your horizon?

News
Is a tree or sea change on your horizon? Fresh air, no bumper-to-bumper traffic and more affordable home prices. There’s plenty of appeal in regional living, including a chance to potentially reduce your home loan.

Why three-in-four Aussies turn to a broker for home loan help

News
Why three-in-four Aussies turn to a broker for home loan help You might have seen a headline or two about a particular big bank being at war with brokers. Nothing could be further from the truth. Our mission is – and always will be – putting you first. That’s why three in every four borrowers now come to us for help.

Why three-in-four Aussies turn to a broker for home loan help

News
Why three-in-four Aussies turn to a broker for home loan help You might have seen a headline or two about a particular big bank being at war with brokers. Nothing could be further from the truth. Our mission is – and always will be – putting you first. That’s why three in every four borrowers now come to us for help.

Why three-in-four Aussies turn to a broker for home loan help

News
Why three-in-four Aussies turn to a broker for home loan help You might have seen a headline or two about a particular big bank being at war with brokers. Nothing could be further from the truth. Our mission is – and always will be – putting you first. That’s why three in every four borrowers now come to us for help.

First home buyers turn to Bank of Nan and Pop

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First home buyers turn to Bank of Nan and Pop Nan and Pop have always been good for birthday money, but one-in-10 grandparents are taking their generosity to the next level: helping their grandkids buy a first home.

First home buyers turn to Bank of Nan and Pop

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First home buyers turn to Bank of Nan and Pop Nan and Pop have always been good for birthday money, but one-in-10 grandparents are taking their generosity to the next level: helping their grandkids buy a first home.

First home buyers turn to Bank of Nan and Pop

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First home buyers turn to Bank of Nan and Pop Nan and Pop have always been good for birthday money, but one-in-10 grandparents are taking their generosity to the next level: helping their grandkids buy a first home.

What you should know before buying ‘subject to finance’

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What you should know before buying ‘subject to finance’ Not sure if you’ll get the thumbs up for a home loan? But you really, really like that house that just popped up? Making an offer ‘subject to finance’ could be the right move. Here’s how it works.

What you should know before buying ‘subject to finance’

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What you should know before buying ‘subject to finance’ Not sure if you’ll get the thumbs up for a home loan? But you really, really like that house that just popped up? Making an offer ‘subject to finance’ could be the right move. Here’s how it works.

What you should know before buying ‘subject to finance’

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What you should know before buying ‘subject to finance’ Not sure if you’ll get the thumbs up for a home loan? But you really, really like that house that just popped up? Making an offer ‘subject to finance’ could be the right move. Here’s how it works.

Not feeling the budget love? 4 ways you could still get ahead

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Not feeling the budget love? 4 ways you could still get ahead If the latest federal government budget is leaving you hungry for perks and savings, you’re not alone. We’ve had a brainstorm and here are four ways you could start working towards your property goals now.

Not feeling the budget love? 4 ways you could still get ahead

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Not feeling the budget love? 4 ways you could still get ahead If the latest federal government budget is leaving you hungry for perks and savings, you’re not alone. We’ve had a brainstorm and here are four ways you could start working towards your property goals now.

Not feeling the budget love? 4 ways you could still get ahead

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Not feeling the budget love? 4 ways you could still get ahead If the latest federal government budget is leaving you hungry for perks and savings, you’re not alone. We’ve had a brainstorm and here are four ways you could start working towards your property goals now.

Low deposit scheme helps over 150,000 families buy sooner

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Low deposit scheme helps over 150,000 families buy sooner Whether you’re rat running your local streets, or have a knack for always picking the fast-moving supermarket queue – everyone loves a good time-saving hack. Well, today we’ll let you in on a scheme that could get you into your first home years – yep years – sooner!

Low deposit scheme helps over 150,000 families buy sooner

News
Low deposit scheme helps over 150,000 families buy sooner Whether you’re rat running your local streets, or have a knack for always picking the fast-moving supermarket queue – everyone loves a good time-saving hack. Well, today we’ll let you in on a scheme that could get you into your first home years – yep years – sooner!

Low deposit scheme helps over 150,000 families buy sooner

News
Low deposit scheme helps over 150,000 families buy sooner Whether you’re rat running your local streets, or have a knack for always picking the fast-moving supermarket queue – everyone loves a good time-saving hack. Well, today we’ll let you in on a scheme that could get you into your first home years – yep years – sooner!

Here’s why your borrowing power might soon get a lift

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Here’s why your borrowing power might soon get a lift Who doesn’t love a tax cut? Most of us are now only weeks away from saving on our tax bills, with Stage 3 tax cuts to kick in from 1 July. But another key advantage is that the tax cuts could give your borrowing power a nice boost.

Here’s why your borrowing power might soon get a lift

News
Here’s why your borrowing power might soon get a lift Who doesn’t love a tax cut? Most of us are now only weeks away from saving on our tax bills, with Stage 3 tax cuts to kick in from 1 July. But another key advantage is that the tax cuts could give your borrowing power a nice boost.

Here’s why your borrowing power might soon get a lift

News
Here’s why your borrowing power might soon get a lift Who doesn’t love a tax cut? Most of us are now only weeks away from saving on our tax bills, with Stage 3 tax cuts to kick in from 1 July. But another key advantage is that the tax cuts could give your borrowing power a nice boost.

What you should know before buying ‘subject to finance’

News
What you should know before buying ‘subject to finance’ Not sure if you’ll get the thumbs up for a home loan? But you really, really like that house that just popped up? Making an offer ‘subject to finance’ could be the right move. Here’s how it works.

What you should know before buying ‘subject to finance’

News
What you should know before buying ‘subject to finance’ Not sure if you’ll get the thumbs up for a home loan? But you really, really like that house that just popped up? Making an offer ‘subject to finance’ could be the right move. Here’s how it works.

What you should know before buying ‘subject to finance’

News
What you should know before buying ‘subject to finance’ Not sure if you’ll get the thumbs up for a home loan? But you really, really like that house that just popped up? Making an offer ‘subject to finance’ could be the right move. Here’s how it works.

Not feeling the budget love? 4 ways you could still get ahead

News
Not feeling the budget love? 4 ways you could still get ahead If the latest federal government budget is leaving you hungry for perks and savings, you’re not alone. We’ve had a brainstorm and here are four ways you could start working towards your property goals now.

Not feeling the budget love? 4 ways you could still get ahead

News
Not feeling the budget love? 4 ways you could still get ahead If the latest federal government budget is leaving you hungry for perks and savings, you’re not alone. We’ve had a brainstorm and here are four ways you could start working towards your property goals now.

Not feeling the budget love? 4 ways you could still get ahead

News
Not feeling the budget love? 4 ways you could still get ahead If the latest federal government budget is leaving you hungry for perks and savings, you’re not alone. We’ve had a brainstorm and here are four ways you could start working towards your property goals now.

Low deposit scheme helps over 150,000 families buy sooner

News
Low deposit scheme helps over 150,000 families buy sooner Whether you’re rat running your local streets, or have a knack for always picking the fast-moving supermarket queue – everyone loves a good time-saving hack. Well, today we’ll let you in on a scheme that could get you into your first home years – yep years – sooner!

Low deposit scheme helps over 150,000 families buy sooner

News
Low deposit scheme helps over 150,000 families buy sooner Whether you’re rat running your local streets, or have a knack for always picking the fast-moving supermarket queue – everyone loves a good time-saving hack. Well, today we’ll let you in on a scheme that could get you into your first home years – yep years – sooner!

Low deposit scheme helps over 150,000 families buy sooner

News
Low deposit scheme helps over 150,000 families buy sooner Whether you’re rat running your local streets, or have a knack for always picking the fast-moving supermarket queue – everyone loves a good time-saving hack. Well, today we’ll let you in on a scheme that could get you into your first home years – yep years – sooner!

Here’s why your borrowing power might soon get a lift

News
Here’s why your borrowing power might soon get a lift Who doesn’t love a tax cut? Most of us are now only weeks away from saving on our tax bills, with Stage 3 tax cuts to kick in from 1 July. But another key advantage is that the tax cuts could give your borrowing power a nice boost.

Here’s why your borrowing power might soon get a lift

News
Here’s why your borrowing power might soon get a lift Who doesn’t love a tax cut? Most of us are now only weeks away from saving on our tax bills, with Stage 3 tax cuts to kick in from 1 July. But another key advantage is that the tax cuts could give your borrowing power a nice boost.

Here’s why your borrowing power might soon get a lift

News
Here’s why your borrowing power might soon get a lift Who doesn’t love a tax cut? Most of us are now only weeks away from saving on our tax bills, with Stage 3 tax cuts to kick in from 1 July. But another key advantage is that the tax cuts could give your borrowing power a nice boost.

How to know if you’re paying a fair price

News
How to know if you’re paying a fair price We all love the idea of nabbing a bargain property, but for most home buyers the real issue is whether they’re overvaluing a place – and paying too much in the process.

How to know if you’re paying a fair price

News
How to know if you’re paying a fair price We all love the idea of nabbing a bargain property, but for most home buyers the real issue is whether they’re overvaluing a place – and paying too much in the process.

How to know if you’re paying a fair price

News
How to know if you’re paying a fair price We all love the idea of nabbing a bargain property, but for most home buyers the real issue is whether they’re overvaluing a place – and paying too much in the process.

Can you remember your home loan interest rate?

News
Can you remember your home loan interest rate? Where you put your car keys, who won the footy premiership three years back, the new prime minister of New Zealand’s name – all very much socially acceptable things to forget. Your home loan rate shouldn’t be on that list.

Can you remember your home loan interest rate?

News
Can you remember your home loan interest rate? Where you put your car keys, who won the footy premiership three years back, the new prime minister of New Zealand’s name – all very much socially acceptable things to forget. Your home loan rate shouldn’t be on that list.

Can you remember your home loan interest rate?

News
Can you remember your home loan interest rate? Where you put your car keys, who won the footy premiership three years back, the new prime minister of New Zealand’s name – all very much socially acceptable things to forget. Your home loan rate shouldn’t be on that list.