With interest rates currently at record lows, lenders are competing for the business of big borrowers. According to Jayden Vecchio (Red & Co Director of Finance), customers borrowing over $650,000 are being offered rates that are up to 100 basis points lower than competitors loans.
These cheap rates aren’t published by the lenders (because they don’t want you to know about it). That’s why it’s important to do your research, negotiate with lenders or find a good mortgage broker who can search for the best deal. For the right person, there are some huge discounts available.
The table below shows rates for $1 million housing loans. These rates assume the borrower has a stable income, is paying principal and interest and is an owner-occupier.
Comparative rates on a $1m home loan**
|Lender||Product Name||Interest Rate|
|ME||Flexible Home Loan||3.79%|
|NAB||NAB Choice Package||3.99%|
|CBA||Mortgage Advantage Package||4.22%|
Source: Australian Financial Review
The rates available to borrowers clearly vary widely. To give you more of an idea, monthly repayments for ME is $4600, compared to Westpac at $5000, which equates to a difference of about $100 a week! This is why it’s so important for borrowers to monitor interest rates closely or get in touch with an expert broker who can do the hard work for you. You would be surprised at how much you can save by doing some research.
Recently, a Red & Co client refinanced his owner-occupied home loan and investment loan with one of the Big 4. The owner-occupied loan of $1,000,000 has gone from 4.09% to 3.80%, saving the client $2,900 per annum. The investment loan of $760,000 has gone from 4.70% to 4.07%, giving the client an annual saving of $4,788! That’s $7,688 per annum in total!
If you’re not aware of competitor’s rates and go to your existing bank, they will just give you the ‘headline rate’ instead of negotiating. It’s more important to the banks that they retain good customers, so most will be willing to match their competitor’s rate if it means you’ll stay with them. For example, on loans over $5 million, BankWest are currently discounting mandatory deposits by up to a massive $500,000 by raising LVR from 50% to 60%.
Other ways lenders are attracting new customers is by waiving monthly or annual fees, reducing fees, adding offset accounts, offering unlimited redraws, and getting rid of penalties for contributing additional funds to pay down debt (score!).
So what does a lender consider a ‘good customer’?
Historically, banks and other lenders look for professionals with a steady income, wanting to borrow $500,000-$1,000,000 and with an LVR of 70-80%. Loans over $1 million tend to be seen as riskier, but this can depend on who the client is.
Having said this, lenders still have an appetite for ‘top-end’ purchases because they want to increase their profits. Whether they will lend big money just depends on the perceived risk. For the right borrower, banks are offering big incentives for big bucks.
What are borrowers doing?
Given the huge growth in property prices in Australia (mainly the capital cities such as Sydney, Melbourne and Brisbane), $1 million simply isn’t enough for a luxury home. Many borrowers are wanting to borrow sums larger than $1 million to purchase their dream home or investment, so you should be able to get a good deal on your home loan provided you have a strong and stable income.
What might stop home buyers and investors from borrowing big?
Regulators such as ASIC are limiting interest-only loans because they’re concerned that most borrowers are vulnerable to rate rises and don’t have any real strategy.
Other lenders are cutting back loans and placing heavier scrutiny on income and other variables.
So what will happen now?
In summary, lenders are targeting high-net-worth borrowers with strong income, who can borrow up to 90% of the property’s value.
The best thing to do going forward is to speak to an expert adviser or broker about the best loan conditions and rates available for you. Get in contact with Shoheel Khan, Senior Finance Specialist, on 0418 110 870 or [email protected].