This week Commonwealth, Westpac and Suncorp all cut their introductory home loan rates in the hope of stimulating the real estate market which is showing signs of slowing. This is great news for first-time buyers and investors who could benefit from the most recent cuts.
It will also, in theory, drive down the mortgage rates of other banks and lenders who will have to cut prices to stay competitive.
The introductory rates are on two-year variable rate mortgages available to both owner-occupiers and investors and are as low as 3.69% with no monthly service fee or establishment fee. Other offers designed to attract new homeowners include low rates accompanied by rewards points which can be used for retail vouchers or air miles. We asked mortgage expert Nova Oppusunggu if these discounted deals are good in the long term for new homeowners.
“A home loan introductory rate can be seen as misleading as customers often aren’t aware or prepared for their interest rate to revert back to the lenders’ standard variable rate (SVR) once the introductory rate has ended,” said Nova. “Introductory rates are a special interest rate that can vary in time frames, however are generally offered over 1 – 2 years. The idea behind the introductory rate is to allow customers to get a head start on repayments, or utilise extra funds to purchase furniture, pay off other debts or complete renovations.”
“It is important to find out what the rate reverts to, and make sure you don’t cancel out your savings. The alternative for customers is to refinance before their introductory rate finishes, however this can come with additional fees such as bank discharge and application fees, registration fees, valuation fees, and legal fees.”
Along with the discounts the banks are bringing in much stricter criteria for borrowers, in part to appease the banking regulators, and also to ensure they are lending to quality borrowers.
“Lenders each have their own way of assessing each customer’s serviceability at an inflated rate generally above 7%, to ensure they will be able to meet their repayments should interest rates rise. The Australian Prudential Regulatory Body (APRA) has also imposed several guidelines on lenders, one of which recommends tighter measures when it comes to serviceability and capturing customers living expenses and debt commitments accurately,” explained Nova, “This should safeguard against customers failing to meet future repayments should interest rates rise. However, overall, it is important for borrowers to check the fine print of their home loan to ensure they are not stuck with a loan that has a high ongoing rate after the period ends or if there is a more suitable product available.”
Contact Nova Oppusunggu for more information on home loan choices.