Mind the interest rate gap
Over the past twelve months or so, a significant interest rate gap has opened up between different types of loans. This has been driven by regulatory changes to reduce investment and interest only loans.
Banks and lenders responded by increasing rates on investment loans and interest only loans. Increases have been applied to existing loans as well as new loans. A handy profit windfall.
Interest only investment loans have been hit the hardest, with a double sting of increases. One because they are for investment purposes and secondly because they are interest only.
These changes vary considerably across our many banks and lenders. One of the ‘big four’ has an interest rate gap of 1.19% between a principal and interest home loan and an interest only investment loan, for the same loan.
In comparison one of our smaller regional banks has an interest rate gap of 0.8%. On $400,000 loan this gap is $1560/ year.
The moral here; It’s worth doing your home work so you know what you’re getting and you don’t pay too much.
When considering your loan strategy it’s important to get professional advice so your loan suits your purpose and requirements. This is particularly so with a home loan and more so if you are considering interest only repayments.
Sometimes there are good reasons to choose an interest only home loan. With the right loan structure it can be successful in reducing your loan. But, if you choose interest only, because you will struggle with principal & interest payments, then you may be borrowing too much. Time to rethink.
Changing repayments from interest only to principal & interest, will lower your interest rate gap, regardless of whether the loan is a home loan or investment loan.
If you have an investment loan or an interest only loan, it’s worth reviewing as easy interest savings may be available.
If you would like to see if savings are possible for you, either call on 0410 520 398 or email paul@halogenhomeloans.com.au.
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