How to get a ‘1’ in front of your mortgage interest rate

Most of them are only for a one-year term and with smaller lenders.

The lowest fixed-rate loan on the RateCity database – which covers 124 lenders and about 6500 home-loan products – was a tie between Pacific Mortgage Group and Qudos Bank, offering a rate of 1.89 per cent for one year. Next up, G & C Mutual Group was offering 1-year fixed at 1.98 per cent.

Then there were a cluster of products from smaller lenders at 1.99 per cent, including online only lenders 86 400 (NAB owned) and Well Home Loans, and smaller banks Greater Bank (NSW, ACT & QLD only), Police Bank, Geelong Bank (for sub 60 per cent loan-to-valuation ratios), Unity Bank, RACQ Bank and Bank of Heritage Isle (based in Tasmania). Southern Cross Credit Union is also still offering 1.99 per cent for a two-year fixed period.

Normally, I don’t like to name names like this. And none of these are a recommendation to readers.

However, I think it’s an important reminder that there are a range of players in the mortgage market. Often it is the little guys who are most keen to score your business.

I know many people are squeamish about switching to smaller lenders, but consider this: it’s not like you’re trusting them with your money, like when you choose a bank with which to deposit funds. Then, you really want to be covered by the government’s deposit guarantee.

However, when you take out a loan, the lender has more incentive to make sure you can repay them the money, rather than you have in worrying they’ll go under.

So, if you are prepared to act fast and have a roving eye beyond the big-four banks, there are still sub-“2” fixed-interest rates available. This is also true for variable-rate home loans.

As the war on ultra-low fixed-rates has cooled, competition on variable-rate loans is picking up. The RateCity database reveals about 60 variable-rate loan products with a “1” in front.

The lowest variable-rate product is from online lender Reduce Home Loans, which is offering 1.77 per cent for borrowers with a loan-to-valuation ratio (LVR) of less than 80 per cent.

Homestar Finance and Pacific Mortgage Group are both offering 1.79 per cent to borrowers with less than 60 per cent LVR. Well Home Loans is offering 1.82 per cent on its “Equity Plus” variable-rate loan and Freedom Loans 1.84 per cent for sub-60 per cent LVR borrowers.

Seven lenders are offering at the 1.89 per cent variable-rate mark (with varying LVR criteria), including Athena Home Loans, 86400, Homestar Finance, Reduce Home Loans, Tic:toc (which is also offering $2022 cash back), Police Credit Union and Homeloans.com.au.

At the bigger end of town, SunCorp Bank, HSBC, ME Bank, Adelaide Bank, Aussie, ING and Bendigo Bank are also offering sub-2 per cent variable rates.

Of course, variable rates leave you exposed to future interest-rate hikes, and the degree to which lenders choose to pass them on.

If you do look at fixing your mortgage interest rate for a period of time, remember that there is usually no – or only limited – room to make extra repayments, should you come into some unexpected money.

In a world where fixed rates are increasing regularly, it may also be important to consider paying a “rate-lock” fee – which can cost up to $1000 – to ensure you are guaranteed to get the interest rate advertised if you are applying for a new loan, rather than the prevailing rate when it is finally approved.

Also, consider any reduced ability to have a mortgage offset account on fixed-rate loans and the impact of “early repayment” fees should you need to exit the loan early.

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You can also opt to fix a portion of your loan and keep the rest on variable rates.

Finally, always ask for a cash back offer from a new lender to cover any switching costs from your existing lender.

I still can’t tell you whether you should fix. But I can tell you, if want to fix at sub-2 per cent, you better act fast.

Happy mortgage shopping!

  • Advice given in this article is general in nature and is not intended to influence readers’ decisions about investing or financial products. They should always seek their own professional advice that takes into account their own personal circumstances before making any financial decisions.

You can follow more of Jess’ money adventures on Instagram @moneywithjess and sign up to receive her weekly email newsletter.



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