The importance of your mortgage rate
Buying a home is something many Australians aspire to do at some point. Because homes cost so much money, however, it would take even the most frugal person years to save up the money to buy a home in cash. That’s why the vast majority of people borrow money in the form of a mortgage to buy a home. One of the most important factors when looking for a mortgage is the mortgage rate.
Because mortgages are such long-term loans, with terms of up to 30 years, the mortgage rate you get is very important. Even a quarter of a point can make a huge difference in the amount of finance costs you have to pay over the life of the loan. The difference between 3.75 percent and 4 percent for a Mortgage Rate by Loans.com.au, for example, could be thousands of dollars over the life of the loan.
Mortgage rates are set largely by the Reserve Bank with its cash rate, but that doesn’t mean rates can’t fluctuate. One thing that greatly affects your mortgage rate is your credit score. People with higher credit scores tend to get lower mortgage rates than those with higher credit scores. You also might get a mortgage rate discount from your lender for a variety of other reasons that could include being a long-time loyal customer or as part of an introductory loan deal.
Outside of the interest rate on your mortgage, there are other mortgage-related costs that you have to consider. People who put down less than 20 percent of the purchase price may have to pay lenders mortgage insurance, which is a type of insurance that protects the lender against the borrower defaulting. You usually have to pay the premium for this up front, although some lenders and some loan programs may allow you to roll it into your monthly loan payments. You also will have closing costs, which include things such as documentation fees and stamp duties. Your closing costs can run anywhere from several thousand dollars to more than $10,000 and are somewhat dependent on the price of your home.When you are looking for a home and trying to get a good mortgage rate, here are some things to keep in mind. Make sure you have a good credit score, as that will affect your rate. You also might look for special programs for which you qualify that could get you a lower rate.