If you’re an Australian with a mortgage, you’re probably paying too much interest, even if you got the best deal you could afford back when you first signed on the dotted line.
Today, you may be in a financial position where you’re eligible for a much more affordable home loan and not even know it, all because of Australia’s rising house prices.
Why you’re likely paying too much for your home loan
The biggest cost involved with almost any home loan is the interest rate. Lenders base the interest rates they charge on the level of risk involved when lending money to a borrower. To a bank, the less likely you are to pay back a loan, the higher the rate of interest they need to charge to cover their potential losses if you default on your repayments.
One figure many lenders use to gauge a borrower’s riskiness is the Loan to Value Ratio (LVR) – an expression of how much money is being borrowed compared to the total value of the property being purchased. Generally, the higher the LVR, the higher the level of risk, and the higher the interest rate the bank is likely to charge.