This week, our team at Tundra Finance have been reminiscing about just how much things have changed over the years. You might not know this, but if you’re planning on applying for a mortgage now (and are using our free mortgage calculation tool to help you to work out your finances), you’ll be taking advantage of incredibly low home loan rates.
That wasn’t always the case however, and just 20 years ago Australian residents were exposed to some of the highest rates of interest in the world. We’re not talking about 5% rates, nor 10% ones. In fact this number might shock you, but the truth is that 20 years ago (in the 1990s), home buyers were often exposed to repayment plans that carried rates of a whopping 20%.
How on earth did anyone afford these repayments?
Well, back then homes were a lot cheaper than they are now. Where you might have to spend $750,000 AUD on a modern house in Melbourne, just two decades ago these properties would have been hundreds of thousands of dollars cheaper. But even with that reduction in cost considered, the fact that a borrower would have had to add 20% onto their repayments every month is still quite shocking.
This means that if they were repaying $1,000 on their loan every 4 weeks, they’d be adding a further $200 onto the cost. That’s $1,200 a month, or $14,400 a year – with $2,400 of that amount being interest. Over the course of a regular repayment period of 30 years, that’s a ridiculously high amount of interest ($72,000 AUD, where the above example is concerned!)
What’s changed since then?
The first thing that you need to know is that if a mortgage lender expects you to repay 20% interest every month, you are being robbed. Sure some other types of loans feature these rates, but as the repayment durations are often much less, the fees can be a far easier to come to terms with. Nowadays, a good bank should offer rates of between 3% and 4% – and in some cases (like when using certain mortgage brokers), these amounts can be even lower and can often be fixed for a particular amount of time.
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