Don't be misled by 'standard variable rates' - use the IBVR
The average rate paid for standard loans at variable rates, and taking into account all types of lenders, is 5.84 per cent, InfoChoice's Benchmark Variable Rate analysis shows.
So if a bank lender says we'll give you a discount off the so called standard variable rate, or a non-bank lender says we're much cheaper than this bank rate, say 'So What'.
Why? because the 'standard variable rate' in the home loan market has ceased to become a meaningful indicator of home loan rates. Yet still, it's the starting point we all use - lenders, brokers and borrowers - in comparing home loans.
That's why InfoChoice has decided to publish a more meaningful indicator rate - the InfoChoice Benchmark Variable Rate (IBVR) - currently 5.84 per cent. It's the weighted average of the rates offered on full featured variable loans of approximately 100 of the big and small lenders around Australia whose products appear on the InfoChoice website.
Compare any rate you're offered with the IBVR. It's a much better yardstick with which to compare interest rates. Suddenly a lender's offer may not look as good as they say it is.
Fruits of competition
A decade or more of competition means the banks' standard variable rate is not what it used to be. In fact, if you're paying more than 5.84 per cent with a bank, or any lender, you have an expensive home loan.
Even the big banks themselves don't lend to many home loan borrowers at their own standard variable rate. The rise in recent years of "professional packages" and "relationship discounts" means that anyone borrowing a sizeable amount from one of our large banks or credit unions will get a discount on the headline rate.
Typically, if you borrow more than $250,000 with a bank you'll be offered a 0.5 to 0.7 per cent discount off the prevailing "standard variable rate" for the life of the loan. In some cases, the borrowing threshold is as low as $150,000.
Such discounts sound great and, although there is a fee attached, they save many thousands in interest over the full term. But such discounts really only bring the banks' lending rate into line with what many non-bank lenders offer.
If you're one of the lucky borrowers who only needs to borrow a small amount below the thresholds set by the major banks for the discount package, don't settle for paying their standard variable rate. Demand the discount or shop elsewhere.
Of course, you should not shop on rate alone. Always take into account upfront, ongoing and exit fees as well the features and conditions of any loan you consider.