Home Loans Buyers' Market But Be Wary
Sydney Morning Herald
Monday January 4, 1999
Home loan borrowers have started the New Year with interest rates the lowest in more than 30 years, but experts warn that fees, charges and the costs of gimmicks and advertising could wipe out the gains from lower rates. Lenders expect mortgages, along with credit card and personal loans, to boom throughout 1999. Reserve Bank figures show all lending grew 10.5 per cent in the year to November - home lending 10.7 per cent, personal lending, including credit cards, 16.5 per cent, and business and other sectors 9 per cent.
Anecdotal evidence from banks suggests that the growth has continued, particularly in credit card lending.
While January is traditionally a slow period for home lending, banks have so far decided against offering so-called "New Year" deals. These low, fixed-rate, home loans are normally offered in early January to help banks boost lending during slow periods. However, bank spokespeople said the level of lending was satisfactory and that there was no need to offer the deals.
Standard variable rates on home loans offered by major banks are around 6.4 per cent.
Most economists expect the rate to fall to below 6 per cent.
Fees and charges are set to rise, however, as lenders seek to maintain profit levels.
Market Faxts analyst Mr Martin Fox said borrowers should consider more than interest rates when choosing a loan. "People should consider por- tability of loans and the cross-account benefits offered by major banks," he said. "Certainly, there is no best loan out there in the marketplace." Many home loans include fee-free transaction accounts for customers. Mr Fox said customers should pay attention to those factors.
He said it was difficult for borrowers to chose between different types of loans because of the "frills" attached to many offerings.
Cannex Australia analyst Ms Gennevene Ensor said that it was essential that borrowers took out loans based on their own needs.
"A home loan's flexibility and effective value can be best measured by examining the loan over the entire period, taking into account any upfront and ongoing fees, introductory rates and revert rates," Ms Ensor said. She added that fees and charges could wipe out gains from lower interest rates.
The effective interest rate offered by lenders was important. This measures the interest paid by a borrower including all costs.
© 1999 Sydney Morning Herald
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