Is a cheap rate the best option ?

So, is a cheap rate always the best option when it comes to borrowing money? the answer is complicated and needs to take many factors into consideration. Many of these factors would apply to all different types of loans including Home loans, Investment property loans, Personal or Car Loans and even Credit cards.

So many lenders will advertise their lowest rate to get you interested in the product, but you need to investigate the details to find out if this rate is really what it seems.

One factor to consider is the up front or establishment fees that comes along with getting the loan, so if you are getting a great rate but paying a large set up fee your actual rate would be much higher when you consider the cost of setting the loan up. Example: I have a lender on my panel that is offering a low 3.39% for home loan but the establishment fee is $1,870 ( equal to .54% on a $350,000 loan on the first year which would bring the rate to 3.93%) + if you want offset you need to pay a monthly fee + if you want to redraw from the loan it will cost you $50 every time (redraw once a month over a year will cost you $600).

Other factors like ongoing fees redraw, package fee, switching product which can all add large costs to your overall rate. So as discussed above redraw is very important to many people and is normally used when you make extra repayments to your loan and you want to get access to these funds. If the redraw fee was $50, and you used redraw 12 time or once a month your total cost of $600, now this is equal to .17% on a $3350,000 loan. Switching your loan is becoming very common these days as many young people are looking to buy a property and set up as investment and then later move in. After you move in you would be required to switch the loan product and this cost can vary between $300-$700, also this cost can be incurred if you need to switch to Interest Only repayments or back to Principle & Interest. Example: customer switched from Home loan to Investment + moved to IO repayments total cost $1,400 & on a $350,000 loan this would equal to .49%.

Another thing to consider is would you be able to get your loan approved at the low rate lender, I had customers recently that wanted to get a cheap fixed rate at a regional lender but with the cheap rate came a major factor BORROWING CAPACITY, this lenders BC was 25% less than the 4 majors bank so it wasn’t an option for the customer.

If you would like to discuss your rate or many more factors to consider, please call us today

Shannon Gibbons 0417131057