When it comes to buying a home, one of the biggest financial decisions you’ll make is securing a mortgage loan.
The interest rate on your mortgage can have a significant impact on your monthly payments and overall financial well-being.
That’s why it’s important to do your research and find the best rates possible for your mortgage loan.
Here are some tips to help you get the best rates for your mortgage loan:
Shop around
Remember, there are many different types of mortgage loans available in Australia, including fixed-rate loans, variable-rate loans, interest-only loans, and more. Take the time to research your options and find the type of loan that best fits your financial goals and needs.
It’s important to shop around and compare rates from several different lenders. Don’t just go with the first lender you come across – take the time to get quotes from multiple lenders and compare the rates, fees, and terms.
Improve your credit score
Your credit score is a significant factor in determining the interest rate you’ll be offered. A higher credit score will generally result in a lower interest rate, so take steps to improve your credit score by paying off outstanding debts and paying your bills on time.
Here are some tips to help you improve your credit score:
Pay your bills on time
Late payments can have a negative impact on your credit score. Make sure you pay your bills on time, every time.
Reduce your debt
Lenders want to see that you have a manageable level of debt. If you have high levels of debt, work to pay it down or consolidate it into a lower interest loan.
Keep your credit card balances low
High credit card balances can negatively impact your credit score. Aim to keep your balances below 30% of your credit limit.
Limit credit applications
Every time you apply for credit, it can have a negative impact on your credit score. Try to limit your credit applications.
Check your credit report
Your credit report contains information used to calculate your credit score. Check it for errors or inaccuracies and have them corrected.
Build a positive credit history
Demonstrating responsible credit behavior over time can help improve your credit score. Consider using a credit card or loan responsibly and paying it off on time.
Consider a larger deposit
A larger deposit can reduce your loan-to-value ratio, which can result in a lower interest rate. Consider saving up for a larger deposit if you can, as this can help you secure a better interest rate.
Let’s say you’re looking to buy a property in Australia that costs $500,000, and you have a deposit of $100,000. To calculate the LVR, you divide the loan amount by the property’s value and then multiply by 100 to get a percentage.
So if you were to take out a mortgage for $400,000 (i.e., $500,000 – $100,000 deposit), the LVR would be:
LVR = ($400,000 / $500,000) x 100
LVR = 80%
Now let’s say you were able to increase your deposit to $150,000. If you were to take out a mortgage for $350,000 (i.e., $500,000 – $150,000 deposit), the LVR would be:
LVR = ($350,000 / $500,000) x 100
LVR = 70%
As you can see, the larger deposit has reduced the loan amount and thus the LVR. In general, a lower LVR can be advantageous for borrowers as it may result in a lower interest rate, and in some cases, can also help to avoid paying lenders mortgage insurance (LMI).
Negotiate
Once you have a mortgage offer, don’t be afraid to negotiate with the lender. You may be able to secure a better interest rate by negotiating certain terms and conditions of the loan.
Aside from the interest rate, you can also negotiate for the following:
Loan term: The loan term is the length of time you have to repay your mortgage. You may be able to negotiate a longer or shorter loan term depending on your financial situation and goals.
Repayment schedule: The repayment schedule is the frequency and amount of your mortgage payments. You may be able to negotiate a repayment schedule that works better for you, such as bi-weekly payments instead of monthly payments.
Fees: There are several fees associated with a mortgage, such as application fees, valuation fees, and legal fees. You may be able to negotiate these fees or have them waived altogether.
Early repayment fees: Some lenders charge early repayment fees if you pay off your mortgage early or make extra repayments. You may be able to negotiate these fees or have them waived altogether.
Offset account: An offset account is a savings account linked to your mortgage that can help you reduce the amount of interest you pay. You may be able to negotiate an offset account or a better interest rate on your existing offset account.
Consider using a mortgage broker
A mortgage broker can help you navigate the lending landscape and find the best rates for your needs. They have access to a range of lenders and can help you compare the rates and terms of different loans to find the one that works best for you. This can be particularly beneficial if you have a unique financial situation or are looking for a loan that fits your specific needs.
Mortgage brokers are trained professionals who have expertise and knowledge of the home loan market. They can provide valuable advice on the different types of loans, interest rates, fees and charges, and help you navigate the application process.
Shopping around for a home loan can be time-consuming and overwhelming. A mortgage broker can do the legwork for you, and find the best home loan deals based on your financial situation and requirements.
In many cases, mortgage brokers are paid by the lender, not the borrower. This means that the service is often provided at no cost to the borrower, making it a cost-effective way to access home loan expertise and advice.
By taking these steps, you can increase your chances of securing the best rates for your mortgage loan in Australia.
Remember, a lower interest rate can save you thousands of dollars over the life of your loan, so it’s worth putting in the effort to find the best deal possible.
Disclaimer: This article is for informational purposes only and does not constitute financial advice. Please consult your mortgage advisor before you make any decision involving your mortgage.