by Lisa Montgomery 13/11/2006

Borrowers Urged To Shop Around As Bank Rates Climb Over Eight Per Cent

With interest rates now at their highest level since August 2000, home buyers need to make sure that they aren’t paying more than they have to, according to a major non-bank lender.

Resi Mortgage Corporation today said the Reserve Bank’s decision to increase official rates by 0.25% last week was the eighth rate increase since 2002 and has brought the average advertised standard variable bank rate to more than 8% for the first time in six years.

“The flip side is that there is no good reason home buyers should be paying that much in interest rates, particularly when average loan sizes are now so high,” Resi’s National Manager for Consumer Advocacy, Lisa Montgomery said today.

“By doing their research and shopping around home buyers who are now paying more than 8% have the potential to wind back their rate by the equivalent of two or even three of the past rate rises.

“Resi, for example, has a standard variable rate which is 0.63% less than the banks when you factor in the recent rate rise. For a limited time we are also offering a Switch & Save product which gives people who refinance or take out a loan with us a further 0.34% discount on a standard variable rate for the first 15 months of their loan.

“That’s a reduction of 0.97% off the banks’ new average standard variable rate of 8.07% for 15 months – the equivalent of nearly four rate rises. It’s like winding the clock back about three years in terms of costs.”

Ms Montgomery said that less and less people are now paying the full bank rate but there’s still a sizeable number who are – particularly those who took out loans before bank loan discounts became fashionable.

“It doesn’t make sense for them to continue doing so. They should either ask for a discount from the bank or find a better-priced lender.

“Of course anyone who is refinancing should weigh up all the costs involved and make sure they will come out in front. However, if you’re moving to a much better rate there’s a good chance you will, unless the bank’s exit costs are prohibitive.”

Ms Montgomery said that other options cash-strapped home buyers could consider include fixing part of their rate or moving to interest-only payments.

“There are still some great fixed rates around and it’s worth looking at these if you’re feeling the pinch. Interest-only loans often aren’t ideal when property prices are soft, but if you’re having trouble making your repayments they do provide another option.”

Resi today said that it has increased its variable rates by 0.25% for new borrowers in line with Reserve Bank’s increase to official rates. However the rate rise does not come into effect for existing borrowers until this Thursday, November 16.

Resi’s new standard variable rate is 7.44% p.a. (comparison rate of 7.49%) and its Switch & Save variable rate is 7.10% for the first 15 months, after which it reverts to Resi’s standard variable rate (Switch & Save comparison rate of 7.44%).

*The comparison rate is based on a loan of $150,000 for 25 years.