4 ways to get a lower interest rate for your home loan
A mortgage is the biggest expense you’re likely to have. Just lowering your interest a little ends up saving you thousands of dollars in the life of your loan.
Here are 4 ways to get the lowest interest rate for your home loan.
1. Improve your credit score
Your credit score is a number which tells your lender how ‘loan-worthy’ you are. It’s determined by your personal details, past credit providers, the number of credit applications you’ve made, any instances of bankruptcy and more. It’s basically a ‘trustworthiness’ score that tells lenders how likely you’ll be to repay the loan back and how much to lend you. Having a high credit score means that you’ll have access to better deals and perks which end up saving you money.
Check your credit score
Checking your credit score is free from all national recording bodies:
You may receive 1 free copy of your credit report per year. Credit bodies will have to formally identify you, so have your passport, driver’s licence and Medicare card ready.
2. Optimise your LVR
A lender will look at how much you want to borrow, relative to the amount you have. This is known as a Loan-to-Value Ratio (LVR) and is expressed as a percentage. It shows how ‘risky’ your loan could be.
If your home is valued at $1,000,000 and you wish to borrow $700,00; your LVR would be 70%. This is a good score, the lower your LVR, the better. It will be difficult to get approval for a loan if your LVR is over 80% because your lender will see it as a high-risk. If you do get approval, don’t be surprised if your loan attracts additional fees and higher interest rates.
3. Find the lenders with the best deals
Compare home loans from different lenders. Here are some items to take note of:
- Interest rate – what is it, and when is it compounded?
- Comparison rate – the interest rate + additional fees. It’s considered the ‘true’ cost of the loan.
- Monthly repayments – how much are they?
- Application fees – what is the lender charging you to process your loan?
- Ongoing fees – regular payments that are charged in addition to the interest.
- Loan features – any addons to the loan that can form hidden costs.
Every ‘nice-to-have’ feature on your home loan comes at a cost. Determine what you need to include as part of your home loan versus the non-essentials. It’s likely that all the ‘nice-to-have’ features could end up costing you thousands of dollars over the life of your mortgage.
4. Request a lower rate from your lender
It’s always best to let your lender know if your financial situation changes. They’re there to help. There may be options to refinance your current mortgage, providing a lower interest rate with better terms. Having an open conversation with your lender allows you to learn about current or upcoming promotions. Pick up the phone and chat with your lender today. Don’t be surprised if you discover how to drop your interest rate just from having a chat.
At Mortgage House, we’re no strangers to the first homeowner’s journey. If you’re thinking of applying for your first home loan, you can Apply Online today to get started!