The mortgage rate war continues to escalate with a new lender rolling out a variable rate below 2%. Experts, however, are urging borrowers – both homeowners and investors – to consider other factors first before taking the plunge.
Sarah Megginson, editor-in-chief of Your Mortgage, Your Investment Property and Australian Broker, said that while low rates are tempting, it is essential to look beyond the benchmark rate and consider considering Other incentives.
"A low rate is fantastic, but what if their lead times dropped to three months? Or, it could be that once you add a package fee , account maintenance fees and other fees, the loan costs you more in the long run than a mortgage that starts with a 2, "she says.
Loans.com.au recently unveiled an introductory variable rate of 1.99% available to all homeowners. This follows the announcement from Bank of Us, which offers a similar variable rate but only to those residing in Tasmania.
While Loans.com.au offers the lowest variable rate at 1.99%, it reverts to a continuous variable rate of 2.57% after one year. A two-year discounted variable rate of 2.09% is also available, which amounts to 2.79%.
Raj Ladher, mortgage specialist at Your Mortgage Broker, said borrowers should also consider the comparison rate of a mortgage product rather than relying solely on the overall rate.
"In most cases there are start-up costs, ongoing costs and loan closing costs. These fees naturally increase the comparison rate, which illustrates the true cost of the product", a- he said.
While rate hikes are not likely anytime soon, Ladher believes borrowers should also review their current situation before making any changes to their mortgage plans. For Ladher, the structure of the loan can, in many cases, be more important than the rate itself.
"If you are planning to sell your property or are expecting a lump sum in cash, a fixed rate would not best meet your needs, as fixed rates have their limits. Similar reasons could be found with the adequacy of a variable interest rate, "he said.
Megginson shares the same feelings. She said that with a range of products available for borrowers, it might be best to ask for help to save them thousands of dollars.
"Right now, working with a broker is the key to getting a product and rate that meets your needs," she said.
Shane Oliver, chief economist at AMP Capital, said low mortgage rates keep interest charges as a proportion of household income well below historic highs.
"Low mortgage costs also make the costs of financing an investment property very low," he said.
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