Why the lowest rate might not be right for you.
Why pay more for something that we want, when we just don’t have to? And don’t we hate it when we find out someone else is getting a better deal on the same thing we have? It is super annoying and can even make us down right angry!
However there are many factors that go into determining your interest rate, such as how much you borrow, how you repay the loan; and your loan-to-value ratio, amongst other things. Even if you fit the criteria to get the lowest or hottest rate in the market, there are a bunch of reasons why the lowest rate might just not be right for you. Here are just a few for you to consider:
It’s a featureless loan. A super low rate on a loan can often have no features - like no Offset Account. This might work for you if it’s an investment property where you are paying the minimum loan repayment, but we often want more when it’s for our home. The lender may be a wholesale lender. There are a bunch of lenders who on sell other banks or lenders loans, meaning the bank that you deal with may be another bank than the one who actually lends you the money. That’s cool - there is nothing wrong with that, in fact it helps bring competition to the market; and you may not care who gives you the money! Or you just may prefer a bank that you have heard of before.
You don’t have time to wait. Sometimes, when banks offer a super low rate, people rush to in take advantage of it. Which is awesome. But when that happens, the bank can be flooded with applications and they can quickly get a backlog, with not enough staff to assist. This means 2-3 days for an approval can turn into 10-15 days. So if you have a property under contract with a 14 day finance clause, that waiting time can be stressful; and if your application is declined, you may miss out on the property if the seller doesn’t want to provide an extension. Eekk!
It may have a bunch of fees. You might get a super low rate, but the lender might have forgone some interest and replaced it with some monthly fees or some application and valuation fees to compensate them for the low low rate. A minimum loan amount. This is like getting a bulk discount. If your loan is over a certain size, lenders often give a lower interest rate (or a bigger discounts to their standard rate). So if your loan is under the minimum amount, you might not qualify for the lower interest rate.
Honeymoon will soon be over, baby. Yep, we just paraphrased the Cruel Sea. But it’s true! Often the super low rate will be a honeymoon rate - a really really good rate for the first 1-2 years, then will jump up at the end of the period (honeymoon). Sometimes the rate can jump up by 1% or even more, which they will tell you at the about when you sign up, but it kinda takes the shine off the super low rate, doesn’t it?
Low loan-to-value ratio. A bit like the minimum loan amount, a super sharp rate can often have a minimum loan-to-value ratio, like 80%. Sometimes it can be even less than 80%. So if you’re a first home buyer with a 5% deposit, you may not qualify for it. Sad face.
You like a bit of service. Sometimes, when lenders are offering a great rate it is because they don’t offer much after-sales service. Or worse still, they do offer some service, but it’s not that good! So they entice you in with a low rate. Normally, it’s buyer beware!
So that’s just a few reasons why the lowest rate might not be the best for you: because you don’t have time to wait; prefer some features; or just want a bit of service.
If we all did everything in life that was the lowest price, then we’d never go to awesome restaurants, never go on fantastic holidays, or only fly discount airlines. Which we all know just isn’t the case!