Getting a fantastic rate on a mortgage involves more than just comparing possible lenders. On top of market research, you have to ensure that certain factors about yourself and your finances are in order so that you can not only qualify for a mortgage, but as well so that the mortgage has a favourable interest rate.
The market today sorts home loans in a tiered pricing system, which adjusts home loan rates based on certain factors. What may seem like a small issue, can become a large influence on your interest rate, making the difference between a really high interest rate or a low one. For this reason, we’ve put together a comprehensive guide to help you get the best possible mortgage rate available by helping you improve your current standing in the markets tier system.
Employment Status & A Stable Income
Potential mortgage lenders will be very interested in knowing your employment status and will want proof of a steady income for at least the past 24 months. If you have had long periods of unemployment, that will not do you any favours with your application, the same goes for declining wages or salary. Lenders are looking for people who have predictable earning patterns. People who have held the same job for a long time and have only moved up in pay scale are ideal candidates and are highly sought after.
When starting a mortgage, a general rule of a 20% down payment is expected so you can get the best mortgage rate possible. Any less than 20% and lenders will insist that you pay private mortgage insurance which in Australia can cost between 0.5% - 1% of the total loan on a yearly basis.
Your Credit Scores
The biggest influence on a lenders decision on a candidate is their credit score. Lenders will immidiently judge your financial profile and adjust your interest rate to do with your credit score, the higher the credit score, the lower the interest rate.
Today, you can check your credit score online for free with services such as GetCreditScore.com.au which ranks your credit history from 0 to 1200, giving you an idea of what your lender will see before you apply for a home loan. We recommend a score of 622-1200 to feel confident when applying for a home loan.
Late payments can dramatically affect your credit score, whether it be from credit cards, utility bills or other debts, having these marks against your name aren’t ideal when applying for a large loan with expectations of a low interest rate.
Your Cash Reserves
Your potential lender will also be interested in knowing how much cash reserves you have saved separately. They will judge your cash reserve based on how many months worth of repayments you have saved in in cash. The standard amount of cash reserves for a mortgage is two months, of which you must have the liquid cash to cover your mortgage. For higher risk candidates, the cash reserve amount is often higher.
How Can You Find The Best Possible Mortgage Rate?
After you have prepared your finances and credit score, it’s time to start comparing the market for the best possible home loan for you. This can be a complex and time consuming task which requires you to research multiple factors and look over multiple agreements before ultimately making one of the biggest financial decisions of your life. We suggest that you hire a professional to do the hard work for you, so you can concentrate more on your future while an expert navigates through the best home loans to find you a perfect match.
If you’re in the market for a home loan or would like more information on how to refinance your existing loan for better interest rates, get in touch with us here at ChapterTwo for some free advice towards your financial future. You can reach us now on 1300 344 433 for further consultation.