The price of the property you wish to buy and how much you will ultimately end up paying for it are two very different figures, thanks to the significant impact of the mortgage rate.
The mortgage rate is the interest you are charged on your home loan; this rate can vary from one lender to the next, with even a small difference potentially equating to tens of thousands of dollars over the life of the loan – or more.
It is therefore crucial that you put yourself in a strong position in order to obtain the best mortgage rates available and then compare the offers of different lenders. Loan Station, a reputable mortgage broker in Sydney can help you do this. Loan Station also offers a helpful repayment calculator to guide your financial decisions.
Why your mortgage rate is important
As at the end of February 2024, the average variable mortgage rate offered on new owner-occupied loans was 6.27%, according to data from the Reserve Bank of Australia (RBA).
Based on this rate, an $800,000 loan over a 30-year term will cost you:
* $4,936 a month
* $1,777,013 in total
The overall interest payable will be approximately $977,013.
If, however, your mortgage rate is slightly lower at 5.90%, your costs will be:
* $4,745 a month
* $1,708,233 in total
The overall interest payable will be approximately $908,233.
Thus, this relatively small 0.37 percentage point difference equates to $191 a month and $68,780 in total.
Conversely, if the best mortgage rate you can secure is 6.90% – just 0.63 percentage points higher than the February average – you will pay:
* $5,269 a month
* $1,896,768 in total
The overall interest payable will be approximately $1,096,768.
This difference equates to $333 a month and $119,755 in total.
Being able to attain the best home loan rates in Sydney makes a big difference in how much you will owe your lender. It is important to note, though, that the loan with the lowest interest rate may not necessarily be the best or the cheapest.
3 main factors that affect your mortgage rate
While lenders may advertise their best mortgage rates to entice borrowers, the rate you are offered will not necessarily align with these.
There are several factors that will ultimately determine the rate a lender is willing to offer you. The main ones are:
1. The cash rate
Lenders tend to follow the direction of the cash rate set by the RBA. When this rate is on the increase, mortgage rates will generally also climb; when the cash rate is on a downward trend, mortgage rates will usually come down.
Lenders set and adjust their rates according to their own analysis of interest rate movements and the economic environment in general. Finding the best home loan rates in Sydney will, therefore, require careful comparison of various lenders’ offers.
2. Your credit score
Your credit score is based on several factors relating to your credit history.
The higher your score, the more creditworthy you appear as a borrower and the more favourable your mortgage rate may be. The lower your score, the less favourable your rate may be.
Consulting a mortgage broker in Sydney can help you better understand your credit score.
3. Loan-to-value ratio (LVR)
Your LVR is your loan amount represented as a percentage of the value of the property you’re buying. Lenders usually require a borrower to have an LVR of at least 80%, which requires a deposit of 20%.
While borrowers with LVRs above 80% can still acquire a mortgage, most often by paying lender’s mortgage insurance, those with lower LVRs are likely to be offered lower mortgage rates than those with higher LVRs.
Your LVR is therefore key to securing the best mortgage rates available to you.
How to get the best mortgage rates
By understanding the significance of your credit score and LVR, and strengthening both before applying for a home loan, you have a better chance of being offered the best mortgage rates.
Improve your credit score
Understand how your credit score is calculated and work to increase it by strategically managing your debt. Check your report periodically to track your score and spot any inaccuracies, which you can then get removed.
Lower your LVR
If you are able to put down more than the generally required 20% deposit, you will reduce the loan amount you require as a percentage of the property price.
If, however, you are unable to increase your deposit, you could consider buying a cheaper property. While a $200,000 deposit on a $1 million property (20%) will give you an LVR of 80%, a $200,000 deposit on an $800,000 property (25%) will result in an LVR of 75%.
Understanding mortgage rates
Your mortgage rate will play a significant role in how much you will repay your lender both monthly and over the full term of your loan. Understanding the key factors that determine the rates you are offered, and strengthening your chance of obtaining the best mortgage rates accordingly, is crucial.
Loan Station, a respected mortgage broker in Sydney, has the expertise and resources to help you search for the best mortgage rates and even negotiate rates on your behalf with its panel of lenders. Get in touch today for personal guidance on securing the best home loan rates in Sydney.
FAQs
How can I get a better mortgage rate?
If you are applying for a new mortgage, you can strengthen your chances of securing a better rate by keeping your loan-to-value ratio as low as possible and having a good credit score. A mortgage broker can help you source multiple home loan offers from their panel of lenders, which you can then compare.
Can I ask my bank to lower my mortgage interest rate?
Yes. You can either approach your lender directly and ask if they can reduce your interest rate, or reach out to a mortgage broker in Sydney, like Loan Station, to negotiate a lower rate with your lender on your behalf.
How do I find a better mortgage rate?
If you have an existing mortgage you can either negotiate a lower interest rate with your current lender or consider refinancing your loan with another lender. A mortgage broker can help you source multiple home loan offers which you can then compare to find your best rate.
How can I get the lowest mortgage rate possible?
Strengthening your credit score, putting down the biggest deposit you can afford – at least 20% – and comparing lenders can help you get the lowest mortgage rates possible for your personal situation. Negotiating loan terms, exploring both fixed and variable rate options and seeking expert guidance from a mortgage broker is also advisable.
