In todays complicated home loan lending world there are six keys to your home loan interest rate . They are;
- Whether the purpose of the loan is for owner occupier or investment property. With most lenders, borrowers with an investment loan will pay a higher rate that an owner occupier loan.
- The size of the loan, or in some cases the total amount of lending with the particular lender. If you have a single loan with a lender, then size does matter. The bigger the loan the lower the rate. If you have multiple loans with the same lender, the rate for any new loans will typically be based on your total lending with the lender.
- The loan ratio, ie the percentage of the loan compared to the property value. The “sweet” spot with most banks and lenders is 80%. If your loan or loans are less than 80% of the value of the property on which they are secured, you will normally get a better interest rate.
- Whether the loan repayments are Principal & Interest or Interest only. Some lenders use the type of repayment to set your interest rate. As a rule a Principal & Interest ie normal home loan payments will have a lower rate than an Interest Only loan.
- The Back book effect- If your loan has been with the same lender for a while you maybe paying a higher rate than a new customer to the lender . Lenders don’t always pass on their best rates to existing customers.
- The type of property being used to secure the loan ie a home or investment property. The application of this does vary, but again as a general rule if the loan is secured on an investment property it is deemed to be an investment loan and you will pay a higher rate.
Best interest rates- Normally on Owner Occupier loans with Principal & Interest payment, where the loan is secured on an owner occupier property and is less than 80% of the property value. Larger loans are best for lower rates.
Worst Interest Rates-Smaller Interest Only investment loans that are secured on an investment property with Interest Only repayments and the loan is more than 85% of the value of the investment property.
Choosing the correct lender and loan structure is vitally important in minimizing your loan costs. It’s literally is a hip pocket decision.
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