Home Loan Interest Rate Calculations

F

Fafa

Expert Member
Joined
Nov 9, 2008
Messages
3,097
Hi,

I know I can google this but help from mybroadband is always much better ;) Couple of questions:

1: What difference does 0.5 % make on a home loan over 20 years if the home loan is to the amount of 1mil. (Also please do not just post the answer, I need the calculation).

2: How much of a difference on the interest rate that I can get from the bank will the following scenario have: Person A goes for the home alone and is approved for an 80 % loan of 1 Mil. (house being 1.25mil). Person A just just qualifies for this loan (with a 50 - 100k additional that he may borrow MAX). That was Option A. Option B is to involve a person B (disregard the risk factor of involving person B, as this a whole topic on its own). With Person B the max loan that can be achieved is a 2 mil loan. Purchasing same house. What influence will option A versus option B have on the interest rate. I need a relative figure not a (Option X is better).

3: The difference it makes to bond two properties versus just one property. If property A is paid off and you are purchasing property B. Will it make more sense to bond both properties or just property B. How does this influence interest rate.

4: What other factors can one do to get a better interest rate. I currently have an interest rate of -0.8 on property A. It is however quite overpaid and I can withdraw cash from that. Should I add that to a deposit or what is the better option?

I have spoken to banks about this, but no one gives me a coherent answer :p
 
Z

Zulika

Member
Joined
Apr 15, 2013
Messages
12
Fafa, these are loaded questions, but, as a bond originator and not affiliated to any bank, I'll do my best to give you an unbiased answer and to try and assist :)

1: What difference does 0.5 % make on a home loan over 20 years if the home loan is to the amount of 1mil. (Also please do not just post the answer, I need the calculation). I use a financial calculator, so I can't give you the exact calculation, but using an excel spreadsheet is brilliant for this if you don't have a fin. calculator. Open excel and at the bottom there there are 3 sheets, rightclick on one of the sheets, click insert, it opens a block, go to the spreadsheet solutions tab, and select loan amoritization - you just put in the amount, the interest rate and the years (start date and the $ doesn't matter) and it will tell you the repayment. This way you can change the interest rate and it will change the monthly installment each time.

2: How much of a difference on the interest rate that I can get from the bank will the following scenario have: Person A goes for the home alone and is approved for an 80 % loan of 1 Mil. (house being 1.25mil). Person A just just qualifies for this loan (with a 50 - 100k additional that he may borrow MAX). That was Option A. Option B is to involve a person B (disregard the risk factor of involving person B, as this a whole topic on its own). With Person B the max loan that can be achieved is a 2 mil loan. Purchasing same house. What influence will option A versus option B have on the interest rate. I need a relative figure not a (Option X is better). Risk profile, credit scoring, affordability, percentage of loan you'll take and a valuation of the property are all influencers of interest rate, so it's a difficult one to answer because all the information goes into each bank's algorithm and it will determine what you get. Obviously one can appeal the interest rate and if unsuccessful, after 6 months of paying the bond ask for a re-assessment of the interest rate.... it's not cast in stone.

3: The difference it makes to bond two properties versus just one property. If property A is paid off and you are purchasing property B. Will it make more sense to bond both properties or just property B. How does this influence interest rate.obviously if you are not going to get a 100% bond you'll use property A's equity to cover the rest, so automatically you'll have 2 bonds on 2 properties. It's really comparing apples with pears, because the properties may be in different areas, vastly different in value etc. But, you'll get 2 different rates, the one on A and the one on B - I would try to get the most money out of the one where I'll be getting the lower rate

4: What other factors can one do to get a better interest rate. I currently have an interest rate of -0.8 on property A. It is however quite overpaid and I can withdraw cash from that. Should I add that to a deposit or what is the better option?A bigger deposit reduces risk, and as I mentioned in question 2 it is one of the factors that influence interest rate.

Hope this helps.
 
F

Fafa

Expert Member
Joined
Nov 9, 2008
Messages
3,097
Zulika said:
Fafa, these are loaded questions, but, as a bond originator and not affiliated to any bank, I'll do my best to give you an unbiased answer and to try and assist :)

1: What difference does 0.5 % make on a home loan over 20 years if the home loan is to the amount of 1mil. (Also please do not just post the answer, I need the calculation). I use a financial calculator, so I can't give you the exact calculation, but using an excel spreadsheet is brilliant for this if you don't have a fin. calculator. Open excel and at the bottom there there are 3 sheets, rightclick on one of the sheets, click insert, it opens a block, go to the spreadsheet solutions tab, and select loan amoritization - you just put in the amount, the interest rate and the years (start date and the $ doesn't matter) and it will tell you the repayment. This way you can change the interest rate and it will change the monthly installment each time.

2: How much of a difference on the interest rate that I can get from the bank will the following scenario have: Person A goes for the home alone and is approved for an 80 % loan of 1 Mil. (house being 1.25mil). Person A just just qualifies for this loan (with a 50 - 100k additional that he may borrow MAX). That was Option A. Option B is to involve a person B (disregard the risk factor of involving person B, as this a whole topic on its own). With Person B the max loan that can be achieved is a 2 mil loan. Purchasing same house. What influence will option A versus option B have on the interest rate. I need a relative figure not a (Option X is better). Risk profile, credit scoring, affordability, percentage of loan you'll take and a valuation of the property are all influencers of interest rate, so it's a difficult one to answer because all the information goes into each bank's algorithm and it will determine what you get. Obviously one can appeal the interest rate and if unsuccessful, after 6 months of paying the bond ask for a re-assessment of the interest rate.... it's not cast in stone.

3: The difference it makes to bond two properties versus just one property. If property A is paid off and you are purchasing property B. Will it make more sense to bond both properties or just property B. How does this influence interest rate.obviously if you are not going to get a 100% bond you'll use property A's equity to cover the rest, so automatically you'll have 2 bonds on 2 properties. It's really comparing apples with pears, because the properties may be in different areas, vastly different in value etc. But, you'll get 2 different rates, the one on A and the one on B - I would try to get the most money out of the one where I'll be getting the lower rate

4: What other factors can one do to get a better interest rate. I currently have an interest rate of -0.8 on property A. It is however quite overpaid and I can withdraw cash from that. Should I add that to a deposit or what is the better option?A bigger deposit reduces risk, and as I mentioned in question 2 it is one of the factors that influence interest rate.

Hope this helps.
Click to expand...

this is probably the best advice I have received on this forum :D Thanks.
 
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