What's a decent home loan interest rate these days?

Lyolohobo on 25/10/2016 - 21:52

Hello fellow ozbargainers,

I'm a first home buyer looking to get a home loan with a low, or at least reasonable, interest rate.

I'm looking at properties between $300-350k. I have a deposit of $100k. It's worth noting I'm self-employed though, which effects my eligibility for some lenders/loans. My income for the last financial year was solid, but my income for the year before was less than what I'd need to borrow the amount I require, and some lenders require a minimum of 2 years tax returns.

I've spoken to a broker, looked at a few options, and have received pre-approval for a loan with the ANZ at a rate of 4.03%.

But is this a decent rate, or at least a decent rate given my circumstances?

I've had a bit of a browse of what's out there via the loan search websites and I've seen plenty of rates lower than the one I've been pre-approved for - as low as 3.35% and averaging around 3.6-3.7%.

That said I don't really have a good understanding of this stuff and perhaps there are solid reasons why I'd never qualify for these lower rate loans? Or perhaps the broker I spoke to didn't look around at all the options?

If any of you good people have a bit of knowledge in this area, your advice would be greatly appreciated.

Financial

Comments

  • kingsville on 25/10/2016 - 21:54
    +1

    I'm on 3.77% at Commbank - full package deal

    • Skramit on 27/10/2016 - 12:53
      +1

      3.77 including fees or before?

      • kingsville on 27/10/2016 - 12:55
        +2

        annual fee waived in the first year. $395 after that

        • Skramit on 27/10/2016 - 12:56

          Ah ok… that makes more sense :)

  • [Deactivated] on 25/10/2016 - 23:07
    +3

    If you've chosen the right broker they should be able to give you a very clear rationale for why they recommended ANZ. ANZ for plain vanilla loans under $1mil is rarely a price leader. In fact, the same goes for most of the majors. So if your first priority was a low cost loan, it seems strange that they would recommend a major bank to you. However, if there are some complications with your income, savings, credit history or proposed collateral property, major banks by virtue of them chasing mass market appeal, will consider proposals that some of the cheapest lenders will not.

    In short, assuming your credit score, deposit source, net income and proposed collateral property are all A-grade, there is likely be cheaper products out there. Under 3.8%p.a. as a headline rate should be doable with a number of reputable lenders. Ultimately, the rate will be determined by:
    1. Whether you wish to deal with a bank vs. non-bank (banks will be typically be a tad more expensive but you get the protection of the commonwealth guarantee on deposit funds for the attached 100% offset account - if you choose a loan that includes one).
    2. What functionality you want as a part of the loan: If you want a 100% offset account, Android or Apple Pay, included platinum card, etc - the more options you feel are essential will likely put an upwards pressure on the rate and/or annual fee.
    3. How fast you need an approval: The general rule is that the cheapest lenders are often the slowest to get approved with (ceteris paribus).
    4. What kind of customer service you want: Mortgage product pricing is fairly straightforward at a basic level and that is you get what you pay for. Vis a vis you want a major bank, offset account, Apple pay and a platinum card, you're going to be paying closer to 4%p.a. than 3%p.a.. If you're happy to select a a less reputable lender that is making a large number of sacrifices to deliver at a price point, you'll find some cheap loans.

    Recently the tipping point on our lender panel would be around ~3.5x%p.a. for a basic product and ~3.6x%p.a. for a fully featured loan (no annual fee on either). To get anything below that point will mean you will not be dealing with a licensed bank and/or will be dealing with a lender that is not known for a high quality service provision with the product you are applying for.

    Hope this helps.

    • leiiv on 26/10/2016 - 00:23

      Which bank currently has the best rate for investment loan (400k-500k) with interest only repayment?

      • [Deactivated] on 26/10/2016 - 12:07
        +1

        @leeiv

        Which bank currently has the best rate for investment loan (400k-500k) with interest only repayment?

        Generally speaking (i.e. not credit advice/usual disclaimers apply) we're seeing some of the best IO investment variable rates at present from Virgin Money (they're a part of BOQ), Bank of Sydney, AMP & Adelaide Bank. One can typically expect a headline variable rate under 4%p.a.. Low LVRs and larger loan sizes may also be able to get custom pricing.

        For an IO investment fixed rate, the bank to go to would heavily depend on the fixed term you had in mind, however, Newcastle Permanent is probably the standout with their 2 and 3 year fixed investment rates at present.

        Hope this helps and please feel free to send us a PM if you'd like any further input on a scenario you're evaluating.

        • leiiv on 26/10/2016 - 16:09

          Thanks. That is quite a gap from the 3.5% for the OO ones. Is there any of the banks also offering cashback to cover the refinancing costs?

        • [Deactivated] on 26/10/2016 - 20:42

          @leiiv:

          Thanks. That is quite a gap from the 3.5% for the OO ones.

          You're most welcome. There is definitely a gap, probably comparing like for like, it is 30-50BPS p.a.. This is mainly due to APRA putting rules in place with banks to curb investment lending growth and to strengthen the financial system through more conservative lending standards. So, on one hand, this is often representing increased finance costs to investors - but on the other hand, it may be a good thing so far as ensuring the stability of the property market is concerned - which should hopefully benefit investors in the long run.

          Is there any of the banks also offering cashback to cover the refinancing costs?

          Off the top of our head, we can think of at least 5 banks that are offering such incentives on a fairly common basis. We also see quite a fair bit of this happening ad hoc. In fact, the vast majority of our clients are switching with little to no out-of-pocket expenses due to cashbacks.

    • yolohobo on 26/10/2016 - 00:47

      Thanks that's really helpful.

      In answer to your questions:

      1. Either is fine.
      2. Basic functionality is fine. Just as long as I can make additional payments, I can redraw on those payments if needs be, and there arent any excessive fees or charges, then I'm happy. While it would be nice to have an offset account that my pay goes into and I use for everyday banking, I'd only go down this path if keeping my money in the offset account resulted in a net saving - not just convenience.
      3. I'd need approval within a few weeks. I'm not sure if this represents a short or long period in approval terms though.
      4. Basic customer service is fine.

      My credit score, etc. should all be really good. It's just the self-employment that throws a spanner into the works here. It definitely rules out some options.

      Just to confirm, are you saying I should be gunning for 3.5-3.6%, or should I just be aiming for under 3.8%?

      • [Deactivated] on 26/10/2016 - 12:40
        +2

        Just to confirm, are you saying I should be gunning for 3.5-3.6%, or should I just be aiming for under 3.8%?

        As a yardstick, presently one of our most popular products at your loan size is a basic product from Bank Australia that is 3.59%p.a. (CR 3.60%) with no estab fee, no annual fee & comes with a fee free online redraw & $500 cashback at settlement. The processing times with them are typically reasonable and could likely meet an approval agenda of a few weeks.

        However, which lender/product you chose is largely up to your personal preferences. Given the relatively small loan size, 10 basis points only represents ~$250 a year - not to say that you'd want to waste that money, but one might argue that having a reliable lender and product as well as a satisfying approval experience is easily worth such money. Furthermore, younger people typically switch product and/or lender every 2-3 years. So there's no harm in treating this as a process that may evolve over time vis a vis most products are relatively cost effective to exit within 24 months and if you select a lender that also offers 100% offset account and fixed loans, if you decide a basic product no longer fits your requirements, it's typically not that difficult to switch.

        I'd need approval within a few weeks. I'm not sure if this represents a short or long period in approval terms though.

        It's not on the short side for a robust conditional approval from a cheap lender. As a yardstick, ING and Bank of Sydney (who have been two of our most popular lenders of late) consistently run at 2-4 weeks for a purchase for self employed applicants, and can run out to 8 weeks for a refinance for such an applicant. We've found Bank Australia to be quicker, but 1-2 weeks would still be a fair estimate.

        Hope this helps.

        • matt-ozb on 27/10/2016 - 23:03

          Hi,

          Why is ING Orange Advantage so popular when the 3.74% seems ok (but still not great), but then the comparison rate is 3.96% which isn't great.

        • [Deactivated] on 27/10/2016 - 23:13

          @matt-ozb:

          Why is ING Orange Advantage so popular when the 3.74% seems ok (but still not great), but then the comparison rate is 3.96% which isn't great.

          Thanks for the great question. Generally speaking ING is popular because:
          1) They're one of the few lenders that allow interest only on PPOR home loans.
          2) Their credit criteria is fairly reasonable vis a vis most of our cheaper lenders have higher assessment hurdles & won't accept as broad a variety of collateral as ING will.
          3) ING has received numerous awards for having excellent after sales service & a high quality set of internet & phone banking apps.
          4) They're a subsidiary of a global bank and have an excellent brand reputation - as well as Isla Fisher ;)

          Hope this helps.

        • yolohobo on 01/11/2016 - 18:08

          Just a quick follow up to this…

          I've spoken to my broker, as well as called around to a number of banks.

          My broker has said the main reason he choose the ANZ loan, was because of the likelihood of a successful application. He made the point that because I'm in a unusual situation - i.e. being self-employed and with a significant difference in income between the last 2 financial years - it's important to get approved first time round.

          He said unsuccessful applications are visible to other banks, so if I try and fail with one bank, things might get a little more difficult with the next bank, and so on. He also said if this happens I might lose my pre-approval with the ANZ.

          It's worth noting while most banks and lenders said no, I did find a few with slightly cheaper loans with other banks, who've said I stand a good chance of being approved for. But if the risks are as dire as they've been made out to be by my broker, it seems like following through on any of them is probably not worth the risk.

          I'm also in a bit of a bind as I'm running out of time to get this sorted out.

          It would be great to get your thoughts on this.

          Is this legit, or is he just trying to talk me out of shopping around?

          I've already signed a contract and paid a deposit on the property I'm buying, so losing my pre-approval with ANZ (and not being able to get a loan anywhere else) would be catastrophic.

        • [Deactivated] on 02/11/2016 - 11:39
          +1

          @sipitai:

          Is this legit, or is he just trying to talk me out of shopping around?

          In theory, it is entirely legitimate to recommend a lender because they have credit policy that is more conducive to you being approved ahead of another lender where your chances of approval are tenuous but the rate/fees are cheaper. This is especially so considering that you are already committed to a purchase.

          That said, we couldn't say for certain whether their recommendation and advice was solid without knowing your complete credit profile (NB: We don't suggest you share that in a public forum).

          What we can say for certain is that all mortgage brokers/credit advisers who you have engaged to assist you must by law give you:
          1. A Credit Guide: Which covers their scope of advice and, most pertinently, a list of lenders they are accredited with and/or whom they deal most frequently with. If that list looks really short, it should act as a potential warning sign. A broker with a good panel would likely have over 50 lenders. For the sake of perspective, at Naritas the number is over 100.
          2. A Preliminary Assessment which details how the loan they have recommended is 'not unsuitable' (that is ASIC's term - not ours). This should include evidence that the product features match your needs, that you meet the credit criteria for the proposed product (including calculations around the proposed payments vs your demonstrable income) and that any conflict of interest is disclosed.
          3. A formal Credit Proposal: Detailing important things such as the product applied for, estimated costs and their commission. If you were concerned they were recommending ANZ because of the commission offered by them, this is the opportunity to get your broker to prepare alternative credit proposals detailing their remuneration with an alternative lender that you may prefer (so you can compare remuneration differences). Speaking from practical experience, however, the matter to do with commissions altering credit advice for standard loans has been heavily overestimated by the media. Most directly competing lenders provide fairly similar commissions (vis a vis the difference in commissions paid by major banks is negligible). The lenders that pay noticeably larger commissions are typically in the non-conforming (credit impaired) space. However, the difficulty of getting the loans approved, the high interest rates, and the niche nature of that market offset most of the incentive for brokers to simply recommend these lenders to get a higher commission. ANZ is not such a lender and their commission payment is at the mid to lower end of the spectrum of all lenders.

          So, in short, if these 3 documents are missing - or don't seem to be providing clarity as to why the lender/product was recommended (which is the intent of the law with respect to credit advice) - then you may be receiving poor advice.

          I've already signed a contract and paid a deposit on the property I'm buying, so losing my pre-approval with ANZ (and not being able to get a loan anywhere else) would be catastrophic.

          Shopping around does present a small opportunity for a catastrophic failure. The risk comes from:
          1) Damaging your credit score with multiple enquiries to a point where your score is below the minimum required for approval. This is not a particularly big concern for a person with a high credit score, but can be for a person with a low to moderate one.
          2) You disclose information that may not have been disclosed to ANZ. How? These days with positive credit reporting there is the opportunity for information from one lender application to leak to another lender. Again, this risk is not huge, and furthermore, if you've been completely transparent with ANZ, it may not be a risk to your approval.
          EDIT: One of our team has just suggested…
          3) Deprioritisation of your formal approval: If you only hold a weak pre-approval or conditional approval with a lot of conditions, there is likely to be a fair bit of work to be done to facilitate formal approval. So, let's face facts - lender credit assessors and mortgage assessment teams are driven by KPIs. If they have gone to the trouble of partially assessing your deal for approval and they receive numerous alerts that you are making credit enquiries with their competitors, well, there is a possibility that your application will be thrown to the bottom of the pile if they are busy and have more guaranteed applicants to allocate their time to.

          Hope this helps.

        • yolohobo on 02/11/2016 - 15:58
          +1

          @naritas:

          Thank you so much for all your help here. It's been really great to get a second opinion on all this stuff :)

    • bargainbargain on 26/10/2016 - 11:30

      which lender is 3.6x% pa?

      • [Deactivated] on 26/10/2016 - 20:47

        We see Bank of Sydney, Citibank and Virgin Money in this range pretty consistently at present.

  • Trying2SaveABuck on 26/10/2016 - 10:55
    +2

    If you are paying under 4% you are doing ok.

    You're loan size isn't really big enough to negotiate a good deal with a larger lender (250K ish is peanuts to banks). If you go with some of the non-banks you might find you could get as low as 3.36% but be careful they are slow to approve and can make it difficult to withdraw your money out if you need to re-draw they also have shocking assistance once you have the loan.

    Im with bankwest I wouldnt recommend them im just a little under 4% and i called the other day and they refused to negotiate due to my only owing such a small amount.

    If you dont mind non-traditional lenders Loans.com are cheap (but you get the most bare basics) if you want a trusted company and poor service Ubank.com might be a better bet.

    If you want a place you can actually walk into CGU might give you a good deal.

    Usually as a general rule stay away from the big banks they are the 1st to pass on a rate rise and the last to pass on a cut (if they pass it on at all)

    One last thing to be aware of make you know the difference between variable and comparison rate you might be geting a 4.04% variable rate with ANZ but they usually throwing a bunch of annual and application fee's so really you end up paying more closer to 4.5%. I've noticed a lot of the big banks are doing this ie CBA usually charge $395 p.a for no reason which can really make a difference to you rate when loaning a small amount

    • matt-ozb on 27/10/2016 - 23:00

      just because bankwest wont negotiate that doesnt seem like a reason to not recommend them?

      although having said that, their current rate is about 3.85% if you ring up.

      • Trying2SaveABuck on 28/10/2016 - 11:17

        If you dont have a great experience you cant recommend something…

  • Skramit on 27/10/2016 - 13:00
    +1

    Don't forget to ask about fees and features with the really low rates.

    For example I'm paying 4.06% with a major bank but pay zero fees. I get free platinum freq flyer credit cards (incl travel insurance), free 100% offset facility, free unlimited redraws, ATMs on every street corner with a major bank (valuable IMO). I'm also very happy with the customer service, the internet banking product is A Grade and their iPhone app is excellent as well. So I'm happy with my deal TBH.

    Just make sure the fees and features are clearly understood before signing up :)

  • anna10 on 31/10/2016 - 15:10

    Anyone have experience with ME Bank (Industry super funds)?

    • [Deactivated] on 31/10/2016 - 15:34
      +1

      We have a lot of experience in sending mortgages to them.

      Our general experience and feedback from clients has been:

      Pros
      1. Good cash-out/equity release policy to 80% LVR.
      2. Relatively fast approval times in comparison to similarly priced lenders.
      3. Typically one of the cheaper lenders on our panel vis a vis usually noticeably cheaper than the Big 4.

      Cons
      1. Somewhat conservative credit policy i.e. they are not interested in people with bad credit and have relatively stringent servicing hurdles.
      2. Online banking system is not state of the art.
      3. Not ideal for highly complex loan structures vis a vis some of our lenders allow for 10 loan splits, ME is not set up to provide such complex structures.

      Hope this helps

  • anna10 on 31/10/2016 - 15:52

    Thanks for that. It may be suitable for my daughter. But, what are "servicing hurdles." ? Does it mean income and other commitments etc?

    • [Deactivated] on 31/10/2016 - 16:53
      +1

      Thanks for that. It may be suitable for my daughter. But, what are "servicing hurdles."

      You're most welcome :)

      Servicing hurdles generally refer to the minimum level of net disposable income one needs to demonstrate in relation to the proposed loan repayments (i.e. to qualify you'd need to demonstrate a net surplus in funds). In practice, what this means is that some lenders are easier to get an approval with than others. This primarily happens because each lender has their own credit policy and algorithms when it comes to how they assess an applicant's living expenses, debts and income.

      With respect to ME Bank, they are not a lender that is known for approving people who are trying to achieve the biggest loan possible for their income, nor would they be considered particularly lenient so far as general credit policy is concerned. NB: That's not necessarily a bad thing as lenders with lenient credit criteria are often at the expensive end of the rate spectrum in the long term.

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