How a couple with a poor credit score almost halved their mortgage interest rate!

A couple looking for their first home loan approached our Taxpro Mortgage and Finance broker in February 2020. At the time, one had credit card defaults from four years prior where they hadn’t been too diligent with repayments. This had resulted in a poor credit score. The other person actually had no credit history because they had never had a credit card or loan before such as a personal loan or a car loan. This person would have been looked at unfavourably by lenders because they wouldn’t be able to tell if they were responsible with credit.

It can be difficult for lenders to consider a home loan application if there is a poor credit history, however, our Taxpro mortgage broker did a great job in finding two options. The better of the two options for the couple was a variable loan with a 4.74% interest rate with around $2,500 upfront risk fees.

The mortgage application was accepted and to help save money in the long term, the couple decided to pay a bit more than the minimum repayment.

Interest rate cuts doesn’t always mean your home loan gets cheaper

During the Covid-19 recession, the Reserve Bank cut interest rates to a record low of 0.1 per cent. The cut to 0.1 per cent is down from the previous record low of 0.25 per cent, which was announced earlier in the year.

Their lender, however, did NOT lower its interest rate accordingly. By now, the couple had been paying their mortgage for over eight months, so they decided to check their credit scores online to see if it had improved to open up more options since they were paying such a high interest rate.

What they found is that the person with credit card defaults had improved their score by 300 points! They got back in touch with our broker, Andrew Dalton, to see if he could help them achieve a better deal.

Overdue accounts listed as a payment default, such as a credit card payment, stay on a credit record for five years. What had happened is that within the timeframe of the couple applying for the mortgage and eight months later, the previous defaults had been cleared from the credit history because five years had now passed.

Our broker spoke to the lender, supplied them with extra documentation including recent payslips and arranged for the lender to complete new credit reports for each of the couple. This appeared to confirm that the defaults had been cleared, because the lender offered to reduce their rate to 2.79% with no other changes or extra fees.

This automatically made their home loan 41% cheaper and equated to around a $5,000 saving over the next year!

Don’t give up your homeowner dream if you have poor credit

Your options may be limited to start with, and you may pay a higher interest rate for a few years. However, as our mortgage clients here have shown, if you make repayments on time and show the lender that your credit management is better than it has been in the past, it is likely that lenders will offer a better deal once payment defaults have been cleared from your credit score.

Getting a home loan is probably one of the biggest financial decisions you’ll make, so it’s important to get it right.Andrew Dalton is a very experienced and skilled mortgage and finance broker. He will search the whole market to source the right products for you and then negotiate with the lenders on your behalf to facilitate them competing for your business. Having secured your home loan, he will be there in the future to negotiate with the lender on your behalf to get you a better deal (like he did for the couple) or support you with any refinancing options.

Check your credit score, you may just score a better mortgage interest rate!

Start the ball rolling and give Andrew a call to chat through your options on 0407 209 759 or email: andrew@taxproaustralia.com.au

We have a variety of home loan information for first time buyers through to property investors, and a series of calculators to help you work out your budgets for buying your first home, refinancing decisions, and building your property portfolio. We also have a number of FREE guides, budget planners and checklists for you to use, so you have all the information you need!

Click here to access our free mortgage and finance guides

Disclaimer: The information contained in this case study is used for illustrative and general education purposes only and is not intended to constitute specialist or personal advice. This information has been prepared without taking into account your objectives, financial situation or needs. Because of this, you should consider the appropriateness of the information to your own situation and needs before taking any action. It should not be relied upon for the purposes of entering into any legal or financial commitments. We recommend credit assistance should be obtained from a suitably qualified professional.

Australian Credit Licence 389087