1. All eyes watching to see what the Reserve Bank does on December 7
2. Watching to see how the major lenders and other lenders react
3. Borrowers looking to see how both standard variable and fixed rates move
4. Existing and potential first home owners watching how the property market in general reacts.

And although the property market is about to go into hiatus for the Christmas/New Year period there’s no question the rate rises already delivered this year have done their job in cooling down the market with lower auction clearance rates and prices, so any further impact for the rest of the year is likely to be minimal.

However the current case of the rate wobbles can be cause for new opportunity as rates have time to settle into their new levels for the next two months until the Reserve Bank meets again in February.

In fact, it’s a perfect time to watch what has happened to all rates over this year and have a look at the new playing field that has opened up for the benefit of borrowers.

It’s a buyers market.

 So what type of loan structure is right for you – right now?

 The answer to this will largely depend on where you are in the home loan cycle and how flexible you wish to be in the years ahead in relation to managing your mortgage and finances  

 And the important lesson is before you jump in the deep end to understand the various loan structures available and what they can offer you before you decide which one is your perfect match.

 Standard Variable Rates

 These rates are the most popular among borrowers as they largely mirror what’s happening to official interest rates and also provide the most flexibility in relation to the range of features attached to the loan.

 Average standard variable rates at the moment are sitting around 2.5 percent above the Reserve Bank official cash rate benchmark but can commonly vary by half a percent between many major lenders.

 When shopping around for a standard variable rate, you should note the comparison rate on the loan, which by law must be advertised alongside the standard variable rate. The comparison rate shows the annual percentage rate of the loan when compulsory fees are included and gives a true cost of the loan.

 However the comparison rate doesn’t include any costs that may be incurred during the period of the loan such as redraw, early termination fees and dishonour fees etc so you need to be aware of this when you make your final choice.

Fixed Rates

Rates on fixed loans are generally set for a period of one, two, three or five years, with some lenders offering fixed loan rates beyond that period.

And this appeals to people who want certainty on their loan repayments, particularly in a time of rising rates.

But the timing of when you fix your rate is often critical and will determine where your fixed rate compares to standard variable rates on the market at any time during the loan period.

With fixed rates, lenders predict ahead where rates will be over the term of the loan period and as a result fixed rates can vary substantially between loan providers. They also usually have high break fees associated with them in order to deter borrowers from switching out of the fixed loan if they find they have locked into a rate too early, and want to change over to another loan.

For this reason many borrowers choose to hedge their bets and fix only part of their loan (known as a split loan), leaving the rest of their loan on a standard variable rate to give them the best of both worlds.

With fixed rates, someone always loses – either the lender or the borrower –  and it’s wise to remember that the lender has many tools at their disposal to make a more accurate call of where rates are headed.

Introductory or honeymoon Rates

Unlike fixed rates for one or two years, these rates are normally variable and are considerably lower than the average standard variable rates on the market i.e. half to one percent for a defined period of time.  This particularly appeals to many first home buyers and others looking for a good head start.

Introductory rates are routinely offered to borrowers for 24 month periods but can also be offered for 12 or up to 36 months.  It’s important to remember with introductory rates, that they will move up and down with interest rate movements, but will always remain lower than their revert rate.

After the introductory or honeymoon period the rate then reverts to a variable rate set by the lender, so anyone considering choosing an introductory home loan should ask the lender what the ‘revert rate’ on the loan is and how it stacks up against their other variable rates in the marketplace.  

The revert rate is important in determining how much you will pay in interest over the life of the loan.  Because if the revert rate is uncompetitive i.e. higher than most variable rates available, the value of the whole package can be more expensive over time.

Currently there are some very good introductory deals on the market for 12-24 months with low revert rates and low to no fees, so you should check both of these key features and also check the lenders comparison rates on the loan.

Capped Rates

This loan style was quite popular in the 1990s and was well-liked in times of rising rates.  Currently there are only a few products of this kind available – so the resurgence in popularity is slow.

The capped rate is usually associated with a variable loan structure but there is a ‘cap’ to how high that rate can go during a certain time period during the course of the loan.   With this loan, the rate can’t go higher than the capped rate for a set period, however it may move up and down below it.

The term that the capped rate may be in place for may vary between loan providers, but usually ranges from around 24-36 months from settlement.  The attraction exists because the capped rate provides security and peace of mind in rising rate environments, and also offers the flexibility that a standard variable rate loan has in relation to loan features.

If you are considering choosing a capped rate product you need to vigorously compare fee structures and the current competitive nature of the rates with other products on the market – as sometimes the appeal of the peace of mind can end up costing you money.

Tracking Rates

A loan type which has emerged recently on the market to appeal to first home buyers and the refinance market, these rates are ‘tracked’ against the average standard variable rates of the big four banks and are promoted as being lower than those rates by a certain amount of (usually) between one half to one percent for certain time periods, usually up to three years. 

If you are considering these loans, you need to be aware of the two main differentiators between the tracking rates of various loan providers which are the fees associated with the loan and the revert rate when it comes off the tracking rate period.

And the answer lies with you. Because if you’re prepared for rates to stabilise or even drop over the next year even after you lock in a higher rate – you’re probably the sort of person (and personality) who is comfortable with taking that risk.

But if you’re living from hand to mouth each month and every rate announcement sends you into a hot sweat – you need to consider whether you would be better with a fixed rate that will give you more certainty around your payments, or indeed whether that hot sweat means you need to drastically revise your whole approach to managing your finances.

So before we put ourselves in one corner or another – let’s have a look at the pros and cons of both types of loans…..

Standard variable loans are historically most popular among borrowers as they generally mirror what’s happening to official interest rates. They also provide the most flexibility in relation to the range of features attached to the loan.

However, the rates on these loans can vary by as much as half a percent between many major lenders, so it’s wise to shop around. You should also check the comparison rate on the loan which gives you an adjusted annual percentage rate by calculating the true cost of the loan when compulsory fees are included.

Fixed loans on the other hand are popular with borrowers who want more certainty on their loan repayments – and for that reason tend to be more appealing in times of rising rates. The rates are generally set for a period of one, two, three or five years, with some lenders offering fixed loan rates beyond those periods

However with fixed loans, timing is everything – as all lenders predict ahead where rates will be over the term of the loan period. Rates therefore can vary substantially between loan providers. This is why taking out a fixed loan is often referred to as betting ‘against the market’.

You need to also be aware that fixed loans can still have some break fees associated with them which are specifically in place to deter borrowers from switching out of the fixed loan if they find they’ve locked into a rate too early – and want to change to another loan.

These fees are however now under closer scrutiny because of implications from the National Consumer Credit Protection Act, but nonetheless, it’s still worth reading the fine print.

So are there any other options? Yes. You can hedge your bets and fix only part of your loan, leaving the rest on a standard variable rate to give you the best of both worlds – and this arrangement is becoming increasingly popular.

And as for a final parting shot – whether you fix or stay with a standard variable loan, the buck really does stop with you.

So determine how you emotionally and financially react to changes in official interest rates – and then look at what sort of financial footing you need to confidently carry you forward

As rates continue to move and competition hots up in the mortgage market, borrowers hunting around for the best standard variable rate need to also check the comparison rate because it will give them a better indication of the loan’s true cost.

As an increasingly greater range of products jostle for a borrower’s attention in the standard variable rate space, borrowers should be aware that some of the newer products on the market do have high comparison rates associated with them and should be more closely scrutinised for that reason.

Since it has been some time since rates were last rising, it is likely that consumers have become a little complacent about the value of the comparison rate in relation to what it can tell them about a loan – so now is the ideal time to ensure they don’t make a mistake by not considering it in the course of their loan research.

By looking at the comparison rate schedule which factors in the financial effect of the compulsory fees and charges over the term of your loan, it could very well make the perceived savings on a low rate negligible – even within the first year.

A general rule of thumb: a comparison rate of around .05 to .10% above the annual percentage rate is a reasonable figure, however when a comparison rate starts to hover more than .25 to .50% above that annual percentage rate, it requires more detailed investigation into the loan costs that are contributing to that higher rate.

Lenders are legally required to provide borrowers with a comparison rate schedule with their loan documentation, as well as including the comparison rate on advertisements and other marketing material so that borrowers can more easily compare one loan against another.

If the comparison rate is not easily apparent, ask the lending representative where you can find that information in the material you have been given.

Now that we are in a rising rate market, a higher comparison rate can have a significantly greater effect on the hip pocket for borrowers, so it’s important to familiarise yourself with its vital role sooner rather than later, if you weren’t already using it during your loan search.

Borrowers should note however that although ongoing loan fees and charges are part of the comparison rate, there may be other costs that are not included because they are dependent on whether or not an event occurs, such as early repayment or redraw fees.

It’s also important to put the comparison rates into context if you are doing a cost versus benefit analysis on how the loan is structured and what each feature is actually costing you.

For example, certain loan features such as flexible repayment arrangements and fee free banking may save you more than they cost – so you need to consider how valuable those loan features and the service that goes with them are to you when weighing up your decision.

Whilst it’s common for many borrowers to occasionally feel frustrated by their mortgage, it is another thing altogether to determine whether it’s financially worth acting and the time is right to move to greener pastures.

The main issue for borrowers is taking time out to look around and see what else is available and many times this doesn’t happen until someone tells you what a good deal they’re on – and it stirs you into action.

But there are several triggers that you can identify prior to reaching this point:

1. When you look at comparable loans, is your rate still competitive?
2. When you look at your loan features, are they still suitable for your current circumstances or are  you paying for features you don’t need anymore?
3. Are you satisfied with the level of customer service with your lender? Do they know you personally enough to provide direction to you on reaching your financial goals – or do you feel like just another customer?
4. When you do hear good stories about other lenders and loan options, are you constantly  feeling  like you have nothing to brag about in relation to your own?

The critical step then is to look at the break costs on your current loan to calculate if switching loans is financially worth it.

If there is a break cost you need to see if it can be easily recouped with the interest you will save over the first few months of taking out a new loan.

Now that Australia is in a rising rate environment and there is more competition between lenders for a borrower’s business, the incentive to refinance is significantly greater than it was two years ago when the mortgage landscape was dramatically different.

However, the stumbling block for many mortgage holders is that they’re so busy juggling their finances they don’t take the time instead to think about whether they can change the actual terms of those finances to make the juggle easier.

A borrower only has to consider what benefits they can gain from refinancing i.e. potentially saving tens of thousands of dollars in interest over the life of a loan and giving them more flexibility over their household cash-flow to convince them that the time may be right.

Just like shopping centres give you a centralised place to compare prices sales and deals for clothes, most people would like a one-stop loan shop to provide opportunity for you to compare and contrast the loan products that best suit your situation. 

There are a lot of websites out there that provide an abundance of information to guide you through the home loan maze but they also report on competition in the home loan industry. Websites such as Info Choice, Rate City, Your Mortgage and Your Investment Property are good places to start.

Other websites which have only been available in the past year or two and also worth a visit are Mozo, Money Buddy and Home Loan Hints. Also check out Resi’s informative videos on My Home.

Also, don’t forget to flick through the financial and property sections of your weekly paper.  This is usually a good starting point for your research into the right home loan for you.  Your national paper will also have an abundance of budgeting tips and market news and can give you an idea of how much houses are selling for in your area of interest.

However that as a result of this industry re-alignment, the borrower will be the clear winner and will benefit from a wider product choice, more concentrated levels of customer service and clearer segmentation across the lending market.

No-one will argue that the last two years has provided challenges for all lenders, but the upside is that that same period has also created new opportunities for established lenders with a multi- disciplinary business model to evolve and reinvigorate the entire customer proposition for borrowers.

The consolidation that has occurred within the non-bank sector has strengthened the future for competition to remain in the market and allows the non-bank hallmark of innovation to continue – an industry element which is essential to ensuring customers have real choice.

A decrease in loan-to-value ratios across the industry has affected all lenders but the upside is that non-banks are now in a position to offer greater discounted rates whilst still retaining a decent margin, simply because most don’t have to juggle the competing interests of borrowers and shareholders.

The last twelve months has also seen the gap between standard variable rates of the major banks increase to more than a quarter of a percent,  making the bank benchmark a less reliable indicator of what’s competitive across the market and leading borrowers to revise their search of both loans and lenders.

Loan volumes have markedly increased for the non-banks during this last quarter which may be largely attributed to that shifting benchmark but it’s also abundantly clear that an increase in the level of dissatisfaction by bank customers is allowing us to claw back some of our previous market share.

With some key industry players still revising their distribution channels, there is still significant change and effect that is yet to be felt by the market and this is likely to have some further impact on borrower behavior.

The effect that consumer sentiment has had on the mortgage industry over the last two years has been largely underestimated, so with more change to come, this effect has yet to be fully played out and is set to be one of the key market differentials for 2010.

A conversation with your lender can assist you through this current climate and arm you with financial strategies which could improve your overall situation.

Some of the options worth exploring before switching institutions – and absorbing the costs with such a move – include:

-         Interest only repayments. Switching to interest only repayments you temporarily reduce your ongoing commitments.

-         Switching to a fixed rate. This can protect borrowers from interest rate fluctuations and set your repayment schedule for a fixed term. You can consider fixing only part of your loan.

-         Change repayment frequency. Paying fortnightly results in more repayments each year, reducing the term of your loan and the interest you pay.

-         Loan Program Conversion. If you did not provide your full financials at the start of your loan application, you may be eligible for an interest rate reduction by providing updated financial information.

-         Extension of Loan Length. By extending the length of your loan, repayments are spread over a greater period, resulting in a reduction in repayment amounts.

If after all of your investigations, you are still not happy with your current lender, then consider other lenders. However, before you make such a significant decision, do your research.