When applying for a loan of any type, the potential borrower will be entering into an agreement whereby they receive financial support from a lender in exchange for agreeing to repay what they borrow, with interest. This interest will act as a form of profit for the lending agency – and this is why many banks (particularly within Australia) will aspire to offer the most competitive interest rates in order to obtain new customers.
The team at Mortgage Broker Melbourne | Tundra say that above all else, an affordable interest rate can make or break a home loan deal – with 2 in 5 applicants inadvertently signing up to higher than average rates on their mortgages simply to get onto the property ladder.
What are interest rates?
Generally speaking, rates of interest are small fees that are applied on top of monthly, fortnightly or weekly mortgage repayments. There are two main types – fixed and variable, with the former offering a solid percentage that can be relied on to stay true for a particular amount of time, and the latter fluctuating depending on the state of the economy and other financial factors relating to the bank itself.
Are there any differences in rates between regular loans and a mortgage?
There certainly are. Where regular options such as personal loans, car loans and business loans will often feature a shorter repayment period; it’s not uncommon for banks to charge a higher percentage to ensure that they also turn a more substantial profit. On the other side of the coin, a mortgage will often be paid off over a longer period of time – and so lower interest rates are far more common.
Why doesn’t everyone take out a mortgage instead of a normal loan?
Unlike traditional loans that can be taken out to help with purchasing a car, running a business or personal needs; a mortgage will be intended to buy a home. As a result, only those that are in the process of doing so will be eligible to apply for these types of home loans.
For loans of a smaller duration, personal ones can be the ideal option as they can be taken out by many people and repaid over a shorter period of time. For home purchases and when financial support is needed to buy a property (for personal or commercial use), a mortgage may well be the way to go, especially where cheaper interest rates are concerned.