Beyond interest rates: other important factors to consider
What's the most important consideration when buying a home? Is it picking the perfect neighbourhood? Or coming up with a 20 per cent deposit? Should you be more concerned with overall home price or other unexpected costs?
At Direct Mortgages, we see a lot of homebuyers fixate on certain factors when deciding on lending products rather than seeing the whole picture. One of these is interest rates, and while rates are important, they should always just be one part of your home finance decision.
How are interest rates determined in Australia?
In Australia, interest rates are determined by the Reserve Bank of Australia (RBA). One of the RBA's primary goals is to control inflation and it does so by adjusting the official cash rate. This dictates what lenders pay on their own borrowing, which in turn impacts consumers.
Essentially, if inflation appears to be going up, they'll raise the cash rate, banks and lenders will follow suit – increasing interest rates on lending products – and homeowners and investors won't have as much money to spend – thus slowing the rise of inflation. While banks are not obliged to follow cash rate movements, they typically track changes within 25 basis points or so of the RBA.
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Rising rates should never be the be-all and end-all of any home decision.
Interest rates definitely matter to the overall health of the property market, but it's important for buyers to remember that rising rates should never be the be-all and end-all of any home decision. Rates will fluctuate – that's how the RBA stabilises the Australian economy – but they'll rarely rise so drastically that they'll dramatically affect your personal finances.
3 factors that are as important as interest rates
Because we have years of experience in home finance, we teach our customers the importance of considering every element of a lending product. Here are three more we emphasise:
1. Your local housing market – Even if selling isn't your top priority, every buyer should consider the general health of the local market. For most owners, a decent amount of personal wealth will be tied up in their property. Therefore, work with a broker who can help you understand local trends identify smart buying opportunities.
2. The level of service your broker can offer – Because rates are set nationally and passed down, you won't see much difference between the rates on different lending products at any given time. In fact, any loan with a ridiculously low rate should be an immediate red flag.
To this end, you'll be better off working with a broker who has a good reputation and can offer a high level of customer service. You'll be expecting them to do a lot of leveraging and negotiations for you, so be sure they're willing to go the extra mile.
3. A broker's depth of knowledge – Further, you need your broker to be experienced. Only a broker with extensive knowledge will be able to help you pick out the most suitable lending product and have the foresight to understand how affordable a loan will be for you five, ten, thirty years down the line.
At Direct Mortgages, we not only help find the most appropriate lending product for our customers, but also take the time to educate them about every aspect of the mortgage they take out. To find out more, reach out today.