There are alot of mortgage rate comparison websites which tries to grab your attention by getting the crowd’s attention by show the lowest possible mortgage rate.
I am sure the extremely or almost unbelievable rate looks attractive there are a number of fine prints that the potential borrower should know.
1. The lowest mortgage rate is reserve for the best credit
As part of the bank assessment of the borrower they will take into consideration of the income and expenses. Fairly or unfairly, from the lender’s perspective the best borrowers are those that don’t need it because they have their own resources to buy real estate.
2. You can join credit unions
Don’t let the headline scare you that the best the best rate you see on comparison website is from a credit unions or building society. These groups are open to the public and all you need to do follow their process to join. For example the police credit union is open to everyone.
3. Special mortgage rates will be available for certain professionals
Some banks have special deals for members of certain professionals such as accountants, engineers or doctors. As long as you a part of the respective professional society you can benefit from either a lower rate than everyone else or a higher LTV before you are required to take out LMI.
4. Lower LTV can decrease the rate on offer
Just like there are differences between commercial vs residential real estate in bank appetite for financing. In the residential mortgage space there could be a better offer from the same bank if the borrower is looking for lower than 80% LTV.
5. Why are rates for principal and interest mortgages lower than interest only mortgages?
From a risk weighting perspective the bank capital are treated more favourably if the mortgage is paid down overtime. This is because assume property values remains the same, the credit risk for the lender decreases as the principal is paid down.
Logically the fall in risk overtime means that the bank can offer a lower interest rate upfront.
6. Fixed vs Variable Interest rate
Fixed rate mortgages protect the borrower from rise in interest rates. Certain points of time fixed rates offered can be lower than variable rates and vice versa.
7. It always helps to ask if that is the best deal on offer
There is always a natural tension between the mortgage originator in the bank the broker as at the end of the day both compete for the same customer. Therefore the rate on offer is the most visible point of comparison but there are additional flexibilities or terms which can vary for the same bank.
If the borrower is unsure, it always help to ask if that is the best deal they can do.
8. Make a like for like comparison table so you can track all of the differences
We have drafted a simple table which compares the key terms of the mortgage but it does not include all of the terms as the focus should just be on the main terms important to the borrower.