Helpcompare Tracking Cheaper Interest Rates

Posted by Simon Dehne on February 24, 2014 in Latest News with No Comments

The Helpcompare team tracked an increasing number of lenders, reducing their two and three year fixed rates last week. Depending on the term of the fixed rate you can now get a fixed rate well below 5% in the Australian lending market.

But what is advertised is not always what the true cost of the loan will be.

That is why it is now law to show the comparison rate. What this does is it allows you to have a reasonable understanding of what the true rate could be. A comparison rate helps you identify the true cost of a loan. It takes into account the interest rate, the loan set-up costs, the term of the loan, and other up-front or ongoing fees associated with a loan.

One critical fee to consider when considering choosing a fix rate is to check if they have any exit fees. Most banks and lenders do not make a song and dance about these fees, however an example of where a lender was advertising a fixed rate at 4.99 per cent for three years, it turned out it was seven percent for three years. So the key question to always ask is what is the comparison rate.

On the surface, advertising a fixed rate at 4.99 per cent and having the comparison rate so much higher is still not the full truth. The issue with exit fees is that you may not even be charged this cost if the loan sees out the full period of the fixed term. The problem begins if you need to break the fixed rate contract before the fixed term expires. So you might say, OK, that is not going to happen but consider the follow life events that you should think about:

  • You need to sell the property thus requiring you to pay out the loan early
  • If the loan is in joint names and the relationship or agreement you have requires you to payout the other person e.g. Divorce
  • You cannot meet your payments and you need to restructure the loan facility
  • Or you need to restructure your loan and the current lender will not approve your request, so you have to seek an alternative lender who will assist provided you transfer all your loans

The key is before you lock in your rate for an agreed period, please make sure you think about the life circumstances that may impact your position. Locking in for three years for example is a long time and a lot can happen in life.

Having raised the dark side of fixed rates to you, the good side is you can possibly get a cheaper rate than your standard variable rate that you have at the moment.

Other benefits to consider are:

  • Peace of mind knowing what your interest commitment will be each month
  • Getting a better interest rate
  • If your loan is for investment purposes, having the ability to pay your interest in advance for 12 months, thus bringing the tax deduction forward. Word of warning, you should always consult your accountant prior to taking this type of action
  • The flexibility of being able to lock a portion of your loan into a fixed rate to give you peace of mind
  • Peace of mind, knowing all or some of loan is protected if rates were start to increase

Determining if a fixed rate is better for you will always depend on your appetite for risk, the life events that can impact you and how you believe the future will look.

The key is to consider all your options with you eyes wide open and to always talk to a licensed mortgage broker who has no vested interest in you choosing one type of loan over another – more on this next week. Also we will share tips on how you can get a better deal from under the counter.


The Helpcompare Team

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