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In encouraging news this week, some lenders have started lowering their mortgage rates en masse influenced by expectations of future interest rate cuts by the Reserve Bank – moves that could tempt borrowers to restructure their home loans.
The downward drift in rates is especially prevalent in fixed loans, with seven lenders cutting their rates by an average of 0.3 percentage points over the past week. Four lenders cut variable rates by smaller margins.
Many two- and three-year fixed loans are now priced at a full percentage point below standard variable rates, which equates to four quarter-point rate cuts.
Australia’s interest rate is forecast to fall from 4.35% to 3.6% by this time next year. It’s not a huge change, but it will certainly be a welcome reduction if it plays out as predicted.
A home loan pre-approval, also known as conditional approval or approval in principle, is an indication from a lender that you’re eligible to borrow a certain amount of money to purchase a property. It gives buyers an idea of how much they can afford to spend and shows sellers that you’re a serious buyer.
Is it a binding approval?
Not quite. The main cause of a home loan pre-approval not going unconditional is typically issues with the property being purchased. Even if a lender has given pre-approval based on your financial situation, the property you want to buy still needs to meet the lender’s criteria.
Common property related reasons for pre-approval not becoming unconditional include:
Property Valuation: If the lender’s valuation of the property comes in lower than the purchase price, they may see the loan as too risky and refuse to approve it. This can happen in competitive markets where buyers overbid or in cases where the property is in a less desirable location.
Title or Structural Issues: Legal or structural problems with the property, such as encumbrances, zoning restrictions, or significant structural damage, can cause lenders to reject the loan.
Unacceptable Property Types: Lenders may have restrictions on the types of properties they finance. For instance, properties in certain locations, off-the-plan apartments, or unique homes like hobby farms may not meet the lender’s approval criteria.
How long is a pre-approval valid for?
Most home loan pre-approvals are valid for 90 days, depending on the lender. If a pre-approval lapses, generally the buyer will need to re-apply for the loan, although the process shouldn’t be as onerous as the first time around i staying with the same lender.
It’s also worth noting that a pre-approval doesn’t lock in your interest rate, so if interest rates go up or down between the time a buyer receives a pre-approval and finding a property, the changes will be passed onto the applicant.
Variable
The rates below are based on a $500,000 loan, with the borrower making principle and interest payments with a loan term of 30 years. The rates quoted may vary depending on the borrowers LVR.
1 Year Fixed
The rates below are based on a $500,000 loan, with the borrower making principle and interest payments with a loan term of 30 years. The rates quoted may vary depending on the borrowers LVR. At the end of the three year fixed period, the borrowers interest rate will revert to a standard variable rate for the life of the loan.
