Bad credit ratings can cost borrowers an extra $177,000 in mortgage repayments

author-avatar By on February 25, 2020
Bad credit ratings can cost borrowers an extra $177,000 in mortgage repayments

Photo by Denise Jans on Unsplash

Credit ratings provider Credit Simple found a bad credit rating can cost an extra $177,607 in repayments over a 25 year home loan.

That figure is calculated on the difference in home loan interest repayments one faces if they have a bad credit rating as opposed to a good one.

Credit Simple found consumers with a good credit rating could access home loan rates as low as 2.80% p.a, while those with a poor rating faced rates of 4.80% p.a. or higher.

On the average Australian home loan of $357,000, as calculated by Illion's Mortgage Nation report released Monday, that could mean a difference in repayments of more than $170,000 over a 25 year loan - or $7,104 a year.

Credit Simple chief David Scognamiglio said 'deadweight flatmates' in your 20s can affect credit ratings, and has a flow on effect later in life.

“If your potential flatmate has a champagne taste on a beer budget, or is simply reckless with responsibilities, it’s worth thinking twice before sharing a lease, as their bad habits can impact you in the future,” he said.

“If you were the one shouting most of the drinks and late-night kebabs last year at uni for your mate, reconsider whether they are in a good financial position to share bills with you.

"If your name is on the bill, then you’re the one putting yourself at risk."

The credit score checking platform chief said building up a good credit rating can be built with simple things like paying electricity bills on time.

“The odd missed bill adds up," Mr Scognamiglio said.

"What seems like a harmless slip-up can come back to bite you in the future – whether it was you or your flatmate handling the share house finances."

Below is a handful of low-rate home loans you could be able to access if you have a good credit rating.

Lender
Advertised rate Comparison rate Monthly repayment Rate TypeOffsetRedrawOngoing FeeUpfront FeesLVRLump Sum RepaymentAdditional RepaymentsPre-approval

VariableMore details
LIMITED TIME OFFER

Smart Booster Home Loan Discounted Variable - 2yr (LVR < 80%)

  • Fast turnaround times, can meet 30-day settlement
  • For purchase and refinance, min 20% deposit
  • No ongoing or monthly fees, add offset for 0.10%
LIMITED TIME OFFER

Smart Booster Home Loan Discounted Variable - 2yr (LVR < 80%)

  • Fast turnaround times, can meet 30-day settlement
  • For purchase and refinance, min 20% deposit
  • No ongoing or monthly fees, add offset for 0.10%
VariableMore details
AN EASY ONLINE APPLICATION

Yard Home Loan (Principal and Interest) (Special) (LVR < 70%)

  • Unlimited additional repayments
  • Unlimited free redraws
  • Optional 100% offset can be added for $120 p.a.^
AN EASY ONLINE APPLICATION

Yard Home Loan (Principal and Interest) (Special) (LVR < 70%)

  • Unlimited additional repayments
  • Unlimited free redraws
  • Optional 100% offset can be added for $120 p.a.^
FixedMore details
NO UPFRONT OR ONGOING FEES

Basic Home Loan Fixed (Principal and Interest) (LVR < 70%) 3 Years

NO UPFRONT OR ONGOING FEES

Base criteria of: a $400,000 loan amount, variable, fixed, principal and interest (P&I) home loans with an LVR (loan-to-value) ratio of at least 80%. However, the ‘Compare Home Loans’ table allows for calculations to made on variables as selected and input by the user. All products will list the LVR with the product and rate which are clearly published on the Product Provider’s web site. Monthly repayments, once the base criteria are altered by the user, will be based on the selected products’ advertised rates and determined by the loan amount, repayment type, loan term and LVR as input by the user/you. Rates correct as of October 27, 2021. View disclaimer.

How to avoid credit rating slip ups when flat sharing

Mr Scognamiglio has identified five checks students can do to eliminate potential 'deadweight' flatmates.

"Check employment - make sure they have a secure source of income to cover bills," he said.

"Get references – ask around your friends who may have lived with the same person in the past to check whether they’re responsible and reliable.

"All names on the lease – a check by the real estate agent is a good safety net before you move in. If the agent doesn’t think they’re trustworthy after compulsory checks, they’re probably not.

"Share the risk – put the bills in different names. Don’t be lumped with all the responsibility of various utility bills.

"Have a house kitty - by agreeing to put a set amount into a kitty each week you can keep on top of bills from utilities to groceries."

He also said keeping a good credit rating while young can go a long way in the future.

“Once you find the right flatmate and property, make sure you keep up the best credit behaviour possible," he said.

"Comprehensive credit reporting means lenders now look at both positive and negative credit reporting, so it pays to cover bills on time. 

“If you do find yourself stuck in a situation with a financially irresponsible flatmate, there are steps you should take to cut financial ties when you move out.

"Remove your name from the lease and bills when you leave – otherwise any late payments made in your name will directly affect your credit score, whether you realise it at the time or not.”

Credit Simple is a subsidiary of Illion, and is in partnership with National Australia Bank to provide Australians with free credit checks.


Disclaimers

The entire market was not considered in selecting the above products. Rather, a cut-down portion of the market has been considered which includes retail products from at least the big four banks, the top 10 customer-owned institutions and Australia’s larger non-banks:

  • The big four banks are: ANZ, CBA, NAB and Westpac
  • The top 10 customer-owned Institutions are the ten largest mutual banks, credit unions and building societies in Australia, ranked by assets under management in November 2020. They are (in descending order): Great Southern Bank, Newcastle Permanent, Heritage Bank, Peoples’ Choice Credit Union, Teachers Mutual Bank, Greater Bank, IMB Bank, Beyond Bank, Bank Australia and P&N Bank.
  • The larger non-bank lenders are those who (in 2020) has more than $9 billion in Australian funded loans and advances. These groups are: Resimac, Pepper, Liberty and Firstmac.
  • If you click on a product link and you are referred to a Product or Service Provider’s web page, it is highly likely that a commercial relationship exists between that Product or Service Provider and Savings.com.au

Some providers' products may not be available in all states. To be considered, the product and rate must be clearly published on the product provider's web site.

In the interests of full disclosure, Savings.com.au, Performance Drive and Loans.com.au are part of the Firstmac Group. To read about how Savings.com.au manages potential conflicts of interest, along with how we get paid, please click through onto the web site links.

*Comparison rate is based on a loan of $150,000 over a term of 25 years. Please note the comparison rate only applies to the examples given. Different loan amounts and terms will result in different comparison rates. Costs such as redraw fees and costs savings, such as fee waivers, are not included in the comparison rate but may influence the cost of the loan.

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Harrison is Savings.com.au's Assistant Editor. Prior to joining Savings in January 2020, he worked for some of Australia's largest comparison sites and media organisations. With a keen interest in the economy, housing policy, and personal finance, Harrison is passionate about breaking down complex financial topics for the everyday consumer.

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