Those who don't ask don't get
Poor knowledge of loan products means borrowers could be missing out on a significant discount.
A survey conducted by Wizard Home Loans shows that one in three prospective borrowers is unaware of widespread home loan discounting.
This result has surprised people in the consumer finance industry. Harry Senlitonga, a researcher at the research group Cannex, says his figures indicate that half the new home loans sold are in packages that include discounts.
The Reserve Bank of Australia (RBA) has commented recently that the majority of borrowers are getting a discount to the standard variable rate when they buy a home loan. The average discount, according to the RBA, is 0.6 per cent.
Some of the more aggressive lenders, such as Westpac, are offering discounts of 0.7 per cent and there are reports that lenders have given their top brokers authority to discount as much as 0.9 per cent for the right business.
As the accompanying charts show, you can save $68,469 on a $350,000 home loan if you cut the rate from 8.07 per cent to 7.07 per cent. On a $500,000 loan the saving is almost $100,000.
None of this negates Wizard's finding that a significant number of borrowers may miss out. "Seventy-eight per cent of respondents to our survey said that a lender should tell them if they are eligible for an interest rate discount. They felt that they should not have to ask for it," says Mark Bouris, chairman of Wizard.
Wizard's survey suggests that Australians are not as savvy about the home loan market as they like to think.
This is also the finding of Genworth Financial's Mortgage Trends Report, published in June.
Genworth, a lenders' mortgage insurer, found that through a combination of ignorance and conservatism borrowers were reluctant to take advantage of innovations such as shared equity, capped rate loans and long-term loans.
Alan Shields, an executive with Retail Finance Intelligence, which prepared the report, says the big driver of change in the mortgage market over the past 20 year has been home affordability: "In the mid 1980s, 41 per cent of first-home buyers were able to put down a deposit of 20 per cent or more.
Only 2 per cent of first-home buyers had no deposit when they bought their home back then. In the 20 years since, homes have become less affordable.
"In our latest survey, 27 per cent said they were able to put down a deposit of 20 per cent or more on their first home, while 12 per cent said they had no deposit when they bought their first home."
Peter Hall of Genworth says a lot of product innovation is aimed at meeting the needs of first-home buyers who can no longer save a substantial deposit.
The problem is that borrowers are unaware of or unwilling to use the new products. According to the survey, 64 per cent would not consider taking out a mortgage with a 100 per cent loan-to-valuation ratio.
"One-third said such a loan would be too expensive. Another third said it was too risky and a third said they would prefer to wait and save the deposit," Hall says.
Fifty-seven per cent of respondents said they would not consider a shared equity loan, saying they did not want to share their capital gain with their lender.
To date the only shared equity loan on the market is offered by Adelaide Bank in partnership with Rismark International.
Borrowers can use the equity loan, which is sold by Adelaide Bank in conjunction with a standard home loan, to borrow up to 20 per cent of the value of the home for a term of 25 years.
No repayments are made on the equity loan portion during the term. When the loan matures or is paid out, the borrower must repay the principal plus 40 per cent of any capital gain on the property. If the value of the property falls, Rismark reduces the amount of principal owing by 20 per cent.
Hall says borrowers are reluctant to get into very long-term loans and only slightly less reluctant to use capped repayment loans where the term rather than the repayment changes when interest rates move.
Meanwhile, Wizard has launched a product called VIP Advantage with discounts which are tiered according to the size of the loan and range from 0.3 to 0.45 per cent.
By ; John Kavanagh
Via : www.smh.com.au
A survey conducted by Wizard Home Loans shows that one in three prospective borrowers is unaware of widespread home loan discounting.
This result has surprised people in the consumer finance industry. Harry Senlitonga, a researcher at the research group Cannex, says his figures indicate that half the new home loans sold are in packages that include discounts.
The Reserve Bank of Australia (RBA) has commented recently that the majority of borrowers are getting a discount to the standard variable rate when they buy a home loan. The average discount, according to the RBA, is 0.6 per cent.
Some of the more aggressive lenders, such as Westpac, are offering discounts of 0.7 per cent and there are reports that lenders have given their top brokers authority to discount as much as 0.9 per cent for the right business.
As the accompanying charts show, you can save $68,469 on a $350,000 home loan if you cut the rate from 8.07 per cent to 7.07 per cent. On a $500,000 loan the saving is almost $100,000.
None of this negates Wizard's finding that a significant number of borrowers may miss out. "Seventy-eight per cent of respondents to our survey said that a lender should tell them if they are eligible for an interest rate discount. They felt that they should not have to ask for it," says Mark Bouris, chairman of Wizard.
Wizard's survey suggests that Australians are not as savvy about the home loan market as they like to think.
This is also the finding of Genworth Financial's Mortgage Trends Report, published in June.
Genworth, a lenders' mortgage insurer, found that through a combination of ignorance and conservatism borrowers were reluctant to take advantage of innovations such as shared equity, capped rate loans and long-term loans.
Alan Shields, an executive with Retail Finance Intelligence, which prepared the report, says the big driver of change in the mortgage market over the past 20 year has been home affordability: "In the mid 1980s, 41 per cent of first-home buyers were able to put down a deposit of 20 per cent or more.
Only 2 per cent of first-home buyers had no deposit when they bought their home back then. In the 20 years since, homes have become less affordable.
"In our latest survey, 27 per cent said they were able to put down a deposit of 20 per cent or more on their first home, while 12 per cent said they had no deposit when they bought their first home."
Peter Hall of Genworth says a lot of product innovation is aimed at meeting the needs of first-home buyers who can no longer save a substantial deposit.
The problem is that borrowers are unaware of or unwilling to use the new products. According to the survey, 64 per cent would not consider taking out a mortgage with a 100 per cent loan-to-valuation ratio.
"One-third said such a loan would be too expensive. Another third said it was too risky and a third said they would prefer to wait and save the deposit," Hall says.
Fifty-seven per cent of respondents said they would not consider a shared equity loan, saying they did not want to share their capital gain with their lender.
To date the only shared equity loan on the market is offered by Adelaide Bank in partnership with Rismark International.
Borrowers can use the equity loan, which is sold by Adelaide Bank in conjunction with a standard home loan, to borrow up to 20 per cent of the value of the home for a term of 25 years.
No repayments are made on the equity loan portion during the term. When the loan matures or is paid out, the borrower must repay the principal plus 40 per cent of any capital gain on the property. If the value of the property falls, Rismark reduces the amount of principal owing by 20 per cent.
Hall says borrowers are reluctant to get into very long-term loans and only slightly less reluctant to use capped repayment loans where the term rather than the repayment changes when interest rates move.
Meanwhile, Wizard has launched a product called VIP Advantage with discounts which are tiered according to the size of the loan and range from 0.3 to 0.45 per cent.
By ; John Kavanagh
Via : www.smh.com.au
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