Introduction to interest rates
As a first home
buyer you may be uncertain about how interest rates work. So let’s clear the air on this important aspect of home buying.
What is an interest rate/cash rate?
Interest rates attract plenty of attention, and that’s because they determine the cost of your home loan and your repayments.
One factor that shapes mortgage interest rates is the “official cash rate” set by the Reserve Bank of Australia (RBA). That makes it worth keeping tabs on cash rate decisions made by the RBA, because a change in the cash rate may flow through to your home loan rate.
What is a comparison rate?
When you’re looking at the interest rates being advertised by different lenders, it’s important to consider the comparison rate, which by law, should be displayed alongside the headline rate.
The comparison rate takes into account most (though not all) fees and charges relating to a loan to give you a better idea of the true cost of the loan.
The comparison rate also makes it easier to more accurately compare different loans. A loan with a very low rate but high fees
How do I compare rates?
The comparison rate provides a greater understanding of the real cost of a home loan. But be careful not to get caught up focusing solely on rates when deciding which loan is right for you.
Home loans offer a variety of features like an offset account or redraw facility. A particular feature may be important to you, and the right loan might have a higher interest rate than a more basic home loan.
The bottom line is that a loan may seem attractive based on its rate but it could turn out to be poorly suited to your needs. The only way to really know is to meet with your Aussie Broker who can explain the loan options that match your circumstances.
What affects interest rates?
As we’ve seen, the RBA sets the cash rate, which is reviewed every month (except January), and it can influence home loan rates. Nonetheless, lenders set their own mortgage interest rates – and a variety of other factors can also affect the rate you pay.
Your personal situation
The upshot is that home loan interest rates can be complex. This highlights the value of speaking with your Aussie Broker to understand the rate you will pay on your first home.
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- Chapter One : Getting started
- Chapter Two : Your dream home
- Chapter Three : Money matters
- Chapter Four : Ways to purchase
- Chapter Five : Understanding interest rates
- Chapter Six : Understanding home loans
- Chapter Seven : Lending sources
- Chapter Eight : Getting your loan
- Chapter Nine : Choosing a home
- Chapter Ten : Steps to settlement