Beware of dirt cheap home loans

THINK twice before signing up to rock-bottom interest rate deals because they may be too good to be true.

HOME loan customers should think twice before signing up to rock-bottom interest rate deals which may be too good to be true.

The cut in official cash rate to 1.5 per cent has seen new customer rates plummet to the low three per cent range, but experts say don’t rush to sign up.

1300homeloan director John Kolenda says any rate between the 3.6 and 3.8 per cent mark is sustainable but deals below this may not be what they seem.

“There may be an adjustment on these rates down the track ... they will be lifted because they are not profitable,’’ he says. “I would be looking at the lender’s track record, I would ask them if you had a home loan with them 12 months ago what would the interest rate be (now).

“It’s important to understand what the rates are for existing borrowers and for new borrowers.”

Kolenda says some of the deals are below their cost which means lenders cannot sustain them because they are unprofitable.

Peter Arnold says borrowers should be cautious of honeymoon rates.

Financial comparison website RateCity’s database shows the lowest introductory deal for a $300,000 30-year home loan is with smaller lender Coastline Credit Union at 3.14 per cent for six months, but then reverts to a much higher comparison rate of 4.72 per cent.

RateCity spokesman Peter Arnold says borrowers should be cautious of honeymoon rates because they are a marketing ploy to attract new business.

“They (lenders) offer some of the cheapest rates upfront but end up being the most expensive in the long run,’’ he says.

“Some lenders are prepared to take a loss initially to attract new customers, banking on the fact they’ll have you for the life of the loan.”

Reduce Home Loans also offers a very low standard variable rate deal at 3.35 per cent but spokesman Josh Beitz says there’s “no point” in simply providing a cheap rate, customers need other loan benefits too.

“We want to give all the bells and whistles to our borrowers such as linked offset accounts, debit and credit cards, ATM, Eftpos and internet banking,’’ he says.

Originally published as Beware of dirt cheap home loans