Nila Sweeney
Q.  As a Defence employee, my partner is entitled to an $80,000 loan through a particular bank at reduced interest rates. He is buying a unit for approximately $300,000 and he needs to borrow around $200,000 (we have a $100,000 deposit). As the bank’s regular rates are quite high, should we take on another lender for the remainder of the loan, or is this not economically feasible (ie application fees)?
 
A. The NAB is the nominated lender under the Commonwealth’s Defence HomeOwner Scheme. My understanding is that if you wish to take advantage of the scheme your loan for $200,000 will need to be with NAB. Under the scheme Defence Housing Australia (DHA) will pay a subsidy equal to 40% of the average monthly interest on the first $80,000 of your NAB loan. The DHA website indicates that initially the “benchmark interest rate” will be the NAB’s introductory or honeymoon rate (6.69% pa as at May) which later converts to the variable rate as nominated for the Scheme. This rate will be the lower of the average standard variable rate offered by the five largest lenders and the NAB’s standard variable rate (8.07% pa as at May). The standard variable rate on offer by banks generally is higher than other rates available in the market (standard variable rates currently on offer sit around 7.50%) but if you run the numbers you will find that the effective rate on a interest-only basis comes in at around 5.62% during the honeymoon period and 6.77% for the remaining loan term.  

Working numbers 
Honeymoon period 1 year
$200,000 @ 6.69% interest-only calculation -- $13,380

Less 
40% subsidy on first $80,000 -- $2,140 
Net interest payable by you -- $11,240 
Effective interest rate for you -- 5.62% pa

Subsequent years 
$200,000 @ 8.07% pa interest-only calculation -- $16,140 
40% subsidy on first $80,000 -- $2,582 
Net interest payable by you  --$13,558 
Effective interest rate for you -- 6.77% pa

Related: Home Loan Calculator

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