Yes – geography matters! Here’s why:

When a bank grants a mortgage loan to a homeowner, they must manage and price the risk of the security of the loan, which is the house.

A mortgage bond does not allow transfer of the title deed to the bank. Instead, in the event of an owner defaulting on their loan, it imposes a right on the bank to have the property sold in execution, and the proceeds of that sale settling the debt secured by the mortgage bond. Due to this, the risk of the security is very much tied to the resale value of the property. How easy will it be for the bank to get buyers for the asset? How will they drive sales for the asset?

When it comes to your home loan application, geography matters. Banks have an area classification risk rating that is factored into the customer’s overall risk assessment. The outcome of this risk assessment is what determines the price of your loan, or the interest rate the bank will offer you.

The factors that affect your property’s area classification risk rating are as follows:

• Historical sales in the area;
• House price appreciation;
• Urban vs rural location;
• Default and repossession rates in that particular area;
• Early settlement rate; and
• Quality and quantity of data for the area, such as number of comparable sales at the time of purchase.

Houses in townships for example, have not historically had title deeds, been bonded, or have a long history of comparable sales. Banks must price up for the risk, which may increase your interest rate and/or decrease your loan-to-value (LTV).

Other borrowers in the area can also influence your interest rate, because the banks may take into consideration how many homeowners have defaulted in the area. They may even take into account the number of homeowners who settle their loan before maturity, before the bank can profit from the loan.

Nearly all of these factors are outside of the purchaser’s control, unless the purchaser is willing to look for properties in good investment suburbs and locations. However, most purchasers do not have this luxury.

I’m set on my property location, so how can I get my interest rate down?

It’s always important to get multiple home loan quotes with a reputable bond originator, to give you leverage and ensure you are getting the best rate. At Phoenix Bonds, we will submit your application to up to 10 banks, negotiate on your behalf and ensure you get the best possible offer. The best part – it’s totally free for you!

To complete a prequalification or apply direct through us, GET STARTED HERE.