Shiny, sparkly rates that start with a 1
We have been asked recently to compare these so-called “home loans starting with a 1”. These home loans are being marketed as super cheap rates the banks can’t match.
As most of you know Blue Zinc started in 1997 and in the past 20 odd years we have seen all sorts of mortgage marketing techniques. This particular technique is called a flagpole rate.
A flagpole rate is designed to get your attention, bring you in, and then usually swap you to another ‘more suitable’ product or in fact leave you with the super cheap rate starting with a 1.
Thankfully these days Australian law requires lenders to publish the comparison rate (in the same font), which in the examples adjacent show a rate of 2.47% and 2.39%. Keep in mind these comparison rates are based on a set scenario. Blue Zinc calculates individual comparison rates based on our clients specific circumstances for each lender we compare.
So far we have not found a single lender with a rate of 1.anything that compares favorably to our better variable rates of 2.40% - 2.60% or the best of our fixed rates around the 2.19% - 2.39%.
It is also worth noting that if the lender does not have the word ‘Bank’ in their name it is safe to assume they are some form of mortgage manager. A mortgage manager borrows the funds they lend to you from a funder (a few will setup their own warehouse facility and try to borrow offshore). In Australia we have very few funders so all these lenders with names
you have not heard of are effectively borrowing their money from the same funder at the same rate. They then charge a margin and lend the money to you.
This is not to say that borrowing from a mortgage manager is a bad thing. I believe my clients should simply understand this structure before borrowing from a mortgage manager. As long as the comparison rate is competitive and the product features align with our clients requirements we are more than happy to arrange finance with the lender of your choice.
Back to our rates that start with a 1. Aside from looking at the current rate, borrowers should consider the long term track record of the lender for passing on rate cuts and for how they go about increasing your rate in line with RBA movements. Many of the cheap cheap introductory rates are based on the premise that in a year or two or three the lender will slowly jack up the rate. By this time you, the borrower, are no longer paying much attention to your boring home loan and don’t even notice that you are now paying over market on your home loan.
Please take advantage of the Blue Zinc - My Rate Check tool to quickly and easily compare your current home loan to the market.
Part of our commitment to our clients is to regularly review our clients mortgage rates and let them know when they are no longer paying a better than market rate. This gives us the opportunity to go back to the lender and request they match the rates offered elsewhere. Another reason to choose Blue Zinc.
You can always conduct your own Mortgage Health Check with Blue Zinc any time here.
Final note on rates that start with a 1 - it has been my pleasure to help hundreds or clients repay their home loan in full (I usually get their investment mortgage along the way). Some of these clients in the 90’s were paying 14% home loans, and over a normal ten year period we should see rates even out around the 6-7% rate. So during these times the people that repaid their homes fast and lived in a home free of mortgage repayments all had one thing in common - and it wasn’t a cheap rate! They all made extra repayments as often as they could. It didn’t matter how small, if they got an $800 tax refund they put it off the home loan. The annual bonus went straight to the home loan. They almost always had their salary paid directly into their offset account so even that reduced their repayments.
I guess my point here is not to focus on sparkly object, but remain focused on your goal to repay your home loan fast. Do the things that achieve your objective and don’t get distracted by shiny, sparkly flagpole rates that start with a 1.