Good to know : What determines your bank & home loan interest rates? #LaxmiHomeLoans
If you have any question with your interest rate please go through following points and let us know if you have any proof that you have been charged more (our existing clients), we will discuss with the bank. Sometimes we just look interest rates by ignoring all other important associated factors which actually determines our interest rates.
There are many factors to consider but following four points are the main key factors which determine interest rates.
1. What is his/her deposit amount and Loan amount?
Ans: Deposit plays very important role in getting a better interest rate as well as Loan amount.
a) If you and your friend are getting a property with your 15% deposit and your friend with 20% for $600k worth of property value. Your friend will have a lower interest rate, it could be by 0.10% or bit more. Why? because you are in Lender mortgage criteria and it takes more work to finalise loan & few more other factors.
b) If you and your friend are depositing 20% of property value but your property value is $600k and your friend’s property value is $800k. At this time also there is likely chance of your friend getting lower interest rate.
2. What is his/her employment status ( FT/PT/Casual/contract )
& Length of work?
Ans: Lets for an example, if you have to give a loan to your friend who does not have a proper job or constantly changes jobs, does not have saving habits, lots of credit card and another loan, sometimes plays poker and drinks as well. Would you lend him/her $5,000 if your friend says he/she wants to invest? 100% NO because there is likely chance of losing money. In the same way, bank assesses files and make a decision.
Length of work in one place really matters!
There are other factors as well, we will discuss in future.
3. When was loan take, type of loan & Date of settlement?
Ans: Let’s take an example: You went to 5 different TV stores and finally decided to buy a TV from Bing Lee, TV seller. You paid $1,000 which is the best price in the market as on today’s date. But after 1 month JB-HI -FI decided to sell the same TV in $750. What would you do or what can you do? Even Bing Lee started to sell in $750, we can not do absolutely anything.
It is exactly the same on Home Loan interest rate. Take the best Home Loan and an interest rate on today’s date. Example: For first home buyers NAB is offering 2 years fixed rate on 3.69% but after 2 months if SUNCORP offers 3.5% interest rate, can you change or go? The answer will be exactly like above. Yes, you can but it will be more expensive.
4. Credit History & liabilities, expense & savings.
Ans: Bank wants to know about your saving and expense payment patterns that is why they ask for 3 months of Credit card and Bank statements. If you are paying a late fee on your $10k credit card then a bank will think if he/she does not even manage $10k credit card properly then how can will they manage $500k loan? so which puts them at risk and they might not negotiate on the interest rate.
Note: In short, It is NOT only important to have lower interest rate. What matters is, how much you can save at the end of the year. For example, if you are paying 4.10% interest rate and your friend is paying 3.99%, for me what matters is if you can save $200 -$1000 a year by paying even higher rate or not. Sometimes higher interest rates come with good features.
Plus: Inflation also plays a vital role too. Faster the inflation could bring rate cuts & Slow inflation could hike the interest rate.
Posted on: November 8, 2017, By: Laxmi - LHL