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5 tips to secure the best interest rate as a first home buyer

When people come to us for a home loan, the number one thing they ask for is ‘the best deal’. But what exactly constitutes a ‘good deal’? Usually the most important factor is the interest rate. Having a lower interest rate on your home loan makes a huge difference, and can end up saving you thousands down the track.

A home loan is often the biggest financial commitment you’ll take on in your life, which means there are no excuses for not going in prepared to bargain for the best deal. Here’s our top tips for getting the best interest rate.

Interest rate terms you should know

Principal and interest loans

Principal and interest loans are when you pay a portion of the principal, the amount of money you borrowed from your lender, plus the interest charged by your lender, with each monthly repayment. 

Offset accounts and redraw facilities

Offset accounts work as an everyday transaction account. The difference though is that when the bank calculates the amount owing on your loan, they include the money in this account. This means that there is less owing on the loan, and you pay less in interest. 

Redraw facilities work similarly to offset accounts: you can place extra money into your redraw facility, which counts as extra repayments towards your home loan. 

Interest-only loans

Interest-only loans are often set for five years, and during this time only the interest on your home loan is repaid. This means that you are not paying off your principal amount, but you’re paying the bank significantly less money. The downside is that your principal amount sits and accrues interest, meaning you end up paying more over the term of your loan.

Fixed-rate home loans

Fixed-rate loans have a constant interest rate for a fixed number of years. They provide you with less risk than the variable rate. However, with this security usually comes extra restrictions on your home loan. 

Variable-rate home loans

Variable rates are based on the Reserve Bank of Australia, so they often change depending on the cash rate set by the Reserve Bank of Australia. 

Now that you’re familiar with the basic terms, let’s get cracking!

Our top 5 tips for getting the best interest rate

1. Get your documents and evidence ready

When it comes to the interest rates, banks often provide better rates to those with strong, stable finances. Getting your credit reports and documents ready is a crucial first step in applying for a loan. 

2. Weigh up your mortgage features and priorities

Set your priorities and decide what features are essential to your loan according to your circumstances. Is a low interest rate the only thing you’re after? Or do you need an easy way to make additional repayments? What about a user-friendly online interface? Thinking about these early means you won’t get sucked in by extra nice-to-haves that might end up costing you more than you bargained for.

3. Compare different loans

With the amount you can afford to borrow, compare loans from at least two different lenders. Check the loan interest rates, fees and features to get the best loan for you.

4. Research the banks’ lending criteria

Each bank will have its own criteria that you need to satisfy before they’ll give you any money. Common things they’re looking for are your age, whether you’re a permanent resident, income, expenses and credit score. Once you know what criteria you’re likely to satisfy and what you won’t you can narrow the field down to the loans that best suit your circumstances.

5. Set up your savings plan

Having a savings plan to manage how you’ll divide up your finances between your loan and other expenses will help you in maintaining a better financial standing and therefore, a  better interest rate.

Securing a low interest rate is a critical factor when getting your home loan, but the process can be complex and overwhelming. It’s always better to seek advice from an expert. 

We can help you to get through this process and walk the road with you. If you’ve got a home loan question, get in touch with us here.

Disclaimer: The information provided is general in nature and does not constitute financial advice. Please speak to us for recommendations on your individual circumstance and requirements.