Just like everyone has a personal credit rating, all banks and lending institutions have a credit rating too. That credit rating is very important when they obtain funding for the money they lend as a home loan. If the bank has a low (poor) credit rating, they pay a higher price for their funding, which, in turn, means a more expensive loan for you.

A major component of a bank’s credit rating is the combined risk profile of all their home loans. If a bank’s total home loans are very high when compared to the total value of the homes they were lent for, this is considered risky. If a bank has lent to too many people who didn’t provide financial information or many first-home buyers, this is also considered risky. This is also why banks charge Mortgage Insurance to borrowers with a small deposit, to protect themselves against high LVR loans. Banks need to keep this risk profile down by attracting low risk customers.

So isn’t it fair that if you are helping the bank reduce its costs, you should also save?

Speak to your local Mortgage Broker about the savings you could obtain.