Is chasing a cheap interest rate going to get you the best outcome?

You’ve saved, sacrificed and worked long hours to earn enough money to buy a home or investment property. After all your efforts, the smart thing is to want a great deal on your home loan.
No one wants to pay the banks more than they have to. Who doesn’t want to own their home as quickly as possible?
However, is snapping up a home loan with the lowest interest rate going to get you the best long term financial outcome?

There are pros and cons to cheap rate home loans

With interest rates at record lows, it’s widely publicised that a lower rate can save you money. Driven by media hype and opinions from various “financial experts”, you can feel the pressure to hunt down the lowest rate or that you’re losing out.

On the one hand, a low rate can be a good thing to pursue. For example, if the lowest rate is attached to the right facility for your personal circumstances. That’s when you can use it to achieve your goals.

Securing the lowest rate is not a guaranteed financial win

Our director, Luke Heavey, has seen this first hand over his 10 years of banking experience, time that includes working in a specialist role with Bank of Queensland’s private clients.

Here are some of the reasons why he doesn’t simply jump on the cheapest rate to help a client reach their goals:

• Know your lender. You need to be aware of the ability of a lender to keep their costs contained if something adverse happens in their loan book. A cheaper rate may come from a smaller lender who may not be able to keep their costs contained in the event of issues in their loan portfolio. Rising costs are passed onto borrowers in a higher rate. A larger lender might be slightly more expensive, but they may have a better ability to withstand these types of issues.
• Customer service. It’s important to consider the level of service you need. A cheaper lender may not have an experienced and stable team who can offer a quick turnaround time for requests such as when you want to expand your portfolio or to release cash.
• Fees. A loan may appear cheaper because of its low-interest rate. However, it may have higher fees to compensate for the lower interest rate. The loan may end up costing you more in the long term.
• Loan features. Everyone’s circumstances are different, and there’s going to be a loan that has the best features for your situation and how you need to use that loan over time.
• A lender that will help you to achieve your goals. You may be starting off with one property but have the goal to acquire more over time. A very centralised product might suit you initially, but you’re going to need a lender that understands your goals and your financials, so you’ve got a better chance at getting re-approvals when you need them.

Focus on the bigger picture and not just the interest rate

Luke has joined the Orium team from Bank of Queensland where he specialised in private banking. He has more than 10 years of banking experience, including working in commercial banking at BNZ and at NAB business banking.

“Whatever you’re trying to do — expand your property portfolio, consolidate debt or refinance to another lender — we’ll think of alternative ways to position a deal, represent you to the lender and place you with a lender that will get you the best outcome,” says Luke.

You could be in a better financial place after just one meeting

Call Orium on 02 8330 3700 to have a complimentary meeting with Luke. We’ll not only review where you are now but work with you to define your goals and then put the right facilities in place to get you there.