Since we started in January 2000, the way that lenders offer interest rate discounts has become MORE complicated, not less. It used to be easy…
Easy changed to complicated
Here is a history of how interest rate discounting has worked since we started:
- Pre-2000 – based on your job – you got rate discounts based on your occupation (doctors, lawyers, etc). This is why they were called ‘professional packages’.
- 2000-2007 – based on loan amount – lenders abandoned the ‘profession-based’ requirement and started looking at the overall lending amount in setting their rate discounts. As long as you could afford the loan, that was good enough for them to give you a discount. This was important as property investing had spread its wings beyond white collar professions.
- Circa 2008-2015 – mix of loan amount and LVR – in the post GFC world, lenders wanted to reward a combination of loan amount and equity – that is because they wanted to attract big loans that were less risky.
- 2015 and beyond – the world is more complicated – the way lenders discount their rates is based on more factors than ever. This is because the authorities like APRA have put certain restrictions on how much investment lending they can do.
5 Ways to a better interest rate
The higher the loan you have with a lender, the better discount you might get
The lower the LVR, the lower the risk, the better the discount
Lenders prefer loans to be P&I and being paid down (even though it may not be the right strategy for you). P&I loans are attracting better discounts at the moment
Lenders are being asked to reduce the % of investment loans on their books, so they need to attract more owner occupied loans. Owner occupied loans are getting better discounts
A lender will look at how ‘positive’ the servicing result is. The stronger the deal ‘servicing-wise’, the better the discount