Interest is a big part of your monthly repayments, especially early on in the life of your home loan. If you want to save money during the life of your loan and obtain lower monthly repayments, you need to find the lowest interest rates available.
Once you know which factors influence available interest rates, you should take steps to improve your chances of getting the best rates. Start by comparing loan options from the top lenders in Australia. Using an online lending platform, such as Canstar, Lendi or Rams, you can compare loan products from over 30 major lenders.
As many factors influence interest rates, comparisons provide the perfect way to find the most favourable rates.
Several factors impact the interest rates presented to you. By understanding these factors, you may be able to improve your financial situation and find lower rates for your new home loan.
- Your Credit Score
Your credit score is one of the most significant factors that impact the available interest rates. Lenders look at your credit score to determine how reliable you are when it comes to paying loans and debts. Lenders see bad credit as a sign that you may neglect your monthly repayments and possibly default on your loan.
While you may not get denied for a home loan due to your bad credit, lenders are likely to offer higher interest rates.
- Location of the Home
The area of the home may also influence interest rates. For example, some lenders may offer lower interest rates in individual states or neighbourhoods. Sometimes, you may find that you get a lower interest rate for a home in a rural area compared to a home in an urban area or vice versa due to the current market conditions or economic factors.
- Property Value and Loan Amount
Lenders also look at the value of the property and the amount of the loan when determining interest rates. However, these details can vary from lender to lender. Some lenders may offer higher interest rates for a smaller loan, while others offer higher interest rates for a larger loan.
- The Amount of Your Deposit
The amount that you have available for a deposit also impacts the interest rates. If you have a small deposit, you will likely end up with a higher interest rate.
Your deposit also impacts your chances of getting approved for a home loan. Lenders often require that you deposit at least 20% of the property’s value. If you have a small deposit or no deposit, you may pay Lenders Mortgage Insurance (LMI), which is insurance for the lender in case you default on the home loan.
- The Loan Term
The final major factor that helps determine interest rates is the loan term. This is the length of time that you choose to pay off the loan. The most common loan term in Australia is 25 years.
You can typically expect lower interest rates when you choose a shorter term. However, the shorter term also results in higher monthly repayments. The advantage to the shorter term is that you will pay less interest over the life of your loan.