Reserve bank of Australia stipulate official interest
rates that is good for the economy. Banks are allowed to make a profit over
and above this rate for the risk they undertake by lending to customers.
More the risk, more the interest they will charge from customers.
A loan is less risky if there is an alternative way to
recover money lent, asset which could be sold easily to recover money such
as car or home. Since risk is less a lower interest rates are offered.
Credit cards has no security, they are more risky, therefore interest rate
is high.
A standard variable rate and fixed rates for 1, 2, 3 4, 5, 7
or 10 years are the common interest charge to customer account. There are a few
essential service charges included in them. Each of these service is a cost to
bank. Banks may add or deduct number of services attached and create other
lender products.
Bank may offer
BASIC VARIABLE RATE loans, a cheaper product
with less services attached to it. They may offer Professional Rates to a
group of professionals.
Similarly each time if they look for an
additional customer there is a cost to bank. If they can retain customers
for longer period this cost could be reduced and can pass interest discount
to customers.
Honeymoon rate is designed to attract
customers who need a relief initial months and recover bank cost there
after. Professional package is at a discount to attract bigger loans,
achieving 0.7% discount is possible, each bank has it's own policy.
Normally each 3 years customers look to refinance their loans
to obtain better deal, cheap interest rates. A 0.7% rate reduction on
average loan 250k is $1450 per year, are you getting this benefit from your
lender?
Loan features may define a loan product. Loans may have
following features to separate them from one another. Each of them you may take
at cheap standard variable rate or at fixed mortgage rates.
Principal & Interest Loans
-
Split Loans
-
Using cross Collateralization
-
Second mortgages
-
Offset Accounts
-
Professional Packages
-
Interest Only
-
Interest in Advance
-
Bridging Finance
-
Lo Doc / Full Doc / No Doc Loans
-
Redraw Facilities
-
Reverse Mortgages - Home Equity Release
-
Fees & Charges
-
Loans to Trust & Company Names
-
Cash Flow Loans
-
100% Loans
-
Shared Equity Loans
Advertised home loan interest rates are
normally about 2% higher than "RBA" Reserve Bank and are just a face
value only. This is termed as Standard Variable Interest Rate. You may
pay other charges for services not included in the deal.
Many mortgage lenders aware that
customers are looking at this face value to make decisions. They do not
want to lose customers. To overcome this situation some times banks
offer products with lower face value (advertised interest rate) and
charge many lender charges beside it separately so that product is
profitable to them.
Looking at "Interest + Fees + Charges"
is a better way to look at a product and normally this is reflected in
Mortgage Comparison Rate. You may find loans with true cheap home loan
rates this way.
We advise you to read all terms and
conditions attached to your product carefully. There are many more other
home loan charges that may impact on you which does not reflect even in
a Mortgage Comparison Rate (ie Exit Fee) .
So lowest interest rate you see in
a mortgage loan may not have cheapest fees + charges combination
for you. No EXPERT
can name which one is the best product, what is best for you may not be
for another.
A BROKER who deals with these products
daily might have a better understanding of them & might suggest you a
better product with cheap interest rate.
