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BLOG: Why getting the best rate for your loan is complicated

Phil Tarrant

BLOG: Why getting the best rate for your loan is complicated

by Phillip Tarrant | February 22, 2018
finance-advice
1 minute read

BLOG: Why getting the best rate for your loan is complicated

February 22, 2018

If you’re currently a customer for a lender, you should always be asking your lender whether they’ve got the right rate for you, but in the end, it’s never easy.

The rate you have today with the lender might be a different rate in three months, six months, 12 months’ time, and you’re an existing customer.

So you need to go back to your lender and say, “Hang on a second, why aren’t I getting the same pricing as new customers?” Is that fair? It’s pretty close.

I like to keep things basic and simple.

There are a couple of things moving in unison to keep in mind, and that is number one: lenders can’t grow their loans from investors too quickly. And number two: they can only have so many IO loans on their books pretty much.

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If banks or lenders are capped at a particular point and they already have current investor clients, they could just push the rates up on them because it’s going to potentially stop them buying other properties or moving elsewhere.

Alternatively, they can bring rates down for other areas if they want particular business there. As an investor, I can shift from being an IO to a P&I loan because there are no caps on P&I loans.

Therefore, they will offer better pricing to try and entice, cajole, whatever else people to go into those markets. If they could shift investors from IO to P&I, it means they could go back and get new customers on IO.

Now, the rationale for these recommendations and guidelines put in by APRA was to try and slow down rampant price growth in the market, and obviously Sydney and Melbourne have seen significant growth.

However, the market has changed a little bit in terms of investor appetite for property. There have been effects depending on the market of slowing down of price growth in some markets, a little bit negative, so in order to survive these changes, it’s important to rely on a mortgage broker.

If you don’t have a mortgage broker, get one. They help you out with this sort of stuff. Sit down with your mortgage broker and look at those pros and cons and that need to be filtered across or in view of what your wider strategy is.

Whatever you’re looking to do, it’s also important to think about whether you’re going to fix your loans or not. If you’re not going to do anything, it’s okay to fix because you’re not going to need access to the cash. But if you choose to be proactive in portfolio development and you need to drill down equity in terms of buying new property or building granny flats, it might not be the right solution or scenario for you.

If you’re going to change the type of loan, then you also need to be weary of break costs incurred. That’s when you say: “Mr Lender, thanks for three-year fixed rate. I’m two years in, I need some money now, I need a different home loan.” They go: “Sure, no problem. For you to break this mortgage is going to cost you X thousands of dollars.”

If you fix it at 4.5 and in three years’ time, variable rates are at 6 per cent, you can potentially have a 1.5 per cent jump in your interest rates at the end. You need to buffer that.

It’s actually quite complicated, this whole scenario in terms of whether to fix or stay variable because you don’t know what you don’t know.

You don’t know what the market’s going to do, you can’t control the market. You might be able to control what you choose to do with your property or property portfolio in two, three years’ time, but you can be restricted if you do fix.

It’s a little bit of risk in there because if you’re stowing variable, you can get the benefits of a variable rate which you hope is down but often it’s up again.

BLOG: Why getting the best rate for your loan is complicated
Phil Tarrant
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About the author

Phillip Tarrant

Phillip Tarrant

Phillip Tarrant is executive editor – Real Estate at Momentum Media. He is also an investor with a large property portfolio.

He leads the content strategy and corporate growth for a range of market and business intelligence platforms at Momentum Media, including Smart Property Investment – the authoritative voice for Australia’s property investment community.

As head of the Smart Property Investment Podcast Network, he also steers the largest network of property podcasts in Australia, which collectively generate nearly two million downloads every year.

There are over 2.6 million investment properties in Australia, with over 2.1 million Australians (or around 8% of all Australians) owning one or more investment properties. A vibrant and critical sector for creating wealth for Australians, the property investment sector is expected to remain a pillar to the national economy.

For nearing a decade, under Phillip’s stewardship Smart Property Investment has been informing and educating property investors on the tactics and strategies to create wealth through property.

Trusted by over 100,000 Australians each month as the turn-to independent resource for property market insights and information, the brand supports the mantra of ‘for investors, by investors’, drawing on the unique position that Phillip and Smart Property Investment shares, warts and all, its own journey through property.

The Smart Property Investment Show, part of the Smart Property Investment Podcast Network, is one of Australia’s most popular podcasts, forming the keystone of an integrated digital platform delivering daily property updates, live broadcasting, insights, opinion and data to property investors across the nation.

Underpinned by a content team universally recognised for their knowledge of the sector and approach for clear and concise communication, Smart Property Investment has become a central part of Australia’s property community.

About Momentum Media

Momentum Media is a leading media and market intelligence company, and the business behind Smart Property Investment, REB and RPM.

Guided by a strong sense of purpose to support our communities, Momentum Media has forged its place as one of Australia’s most influential media and professional development businesses.

We have been equipping Australia’s corporate, investor and SME sectors with market and business intelligence for over a decade.

Across an integrated business supported by digital, events, broadcast, research, print and social platforms, we are guided by the purpose: Be better informed.

This passion for informing, educating and inspiring drives us to build more engaged communities, delivering greater leadership to the markets we connect to and forging closer relationships with our audiences.

Being at the forefront of media innovation, backed by a pioneering spirit, has been central to Momentum Media’s growth.

We’re an evolving, forward-thinking business based on a purpose that supports corporate Australia and the markets critical to our nation’s economic prosperity and security. We’re also focused on delivering exceptional value to our commercial partners.

We adapt on a daily basis to rapidly changing market places; we’re a fluid media business, unanchored to any particular technology, channel or tone of communication.

With a reach spanning nearly 2 million professionals, high-net-worth individuals and SME business owners, we’re connected to the rapidly changing preferences and attitudes of our communities – and we’re making a positive contribution for our communities to thrive.

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