Investor warning: Look closely at discount interest rates before switching

While seven lenders have dropped 20 variable home loans by up to 0.17% this year, according to Finder.com.au, their money expert Michelle Hutchison warns that they aren’t always all they’re cracked up to be. In fact, this discount could cost you more if you don’t look beyond the figure.

A discount can mean good things for those looking for a better deal, however Hutchison notes that borrowers could be missing out on thousands of dollars.

"It's extremely important for borrowers to compare home loan deals, read between the lines, and be wary of discounted home loan rates,” she notes.

"Some lenders, including the major banks, market their home loans based on a discount off their standard variable rate. But the rate you end up with could be much more than other home loans in the market.”

Yellow Brick Road executive chairman, Mark Bouris, said that shopping around is crucial as they might not be as attractive when looking beyond the rate.

“People visit their bank thinking their loyalty is going to get them the best home loan rate, or they're attracted to a special offer, oblivious to the fact that the discount rate might not be competitive in the long run,” he said.

Bouris has regularly urged borrowers to look beyond the discount to find out what it will really cost them. He noted that advertisers often just advertise the discount, rather than the actual interest rate itself, which can make people think they are getting a better deal than they are.

Always look at the true costs, and have all the numbers at hand before you make a decision.