A recent report highlighted the multitude of home loan options on the market.
Here are some tips to negotiate the mortgage maze of over 2,000 home loan products to find the right one for you.
CHOICE, the largest independent consumer organisation in Australia, makes a very interesting statement about the complex world of home loans:
“Home loans are no longer just about signing up for 25 years and making regular payments.”
Whilst the interest rate is a very important feature for most borrowers, flexibility and peace of mind are also important.
Look out for fees
Along with the interest rate costs, you should also check the regular fees and charges. Fees and establishment costs can make a big difference to the amount you pay.
The comparison rate, or annualised average percentage rate (AAPR) is an 'effective interest rate' that takes into account these charges, making it easier to compare loans.
Typical fees include:
Application fees. Lenders may charge an upfront establishment fee and application fee.
Valuation fees. Lenders may also charge for a valuation of the property. If you're concerned you may not meet a lender's income requirements for the loan, ask them to check first, before going ahead with the valuation, as you may have to pay for the valuation even if your loan doesn’t get approved.
Exit penalties. Check the costs for early repayment of the loan or refinancing. Many loans have no payout penalties other than normal discharge costs, but if they exist they can be steep, particularly in the early years. They can be a flat fee, several months' interest or a percentage (around 1%) of the original amount borrowed.
Lender's mortgage insurance. Depending on how much you borrow compared with the amount you paid for your house, you may be required to take out lender's mortgage insurance. Typically you will have to insure if the Loan to Value Ratio (“LVR”) is over 80%. This insurance can be expensive, especially if you want to borrow close to the value of the property.
Features
Home loans have many different features which can affect their overall cost and convenience:
Extra repayments. Some loans, particularly those with a fixed interest rate, may limit the amount you can pay off your loan without having to pay a break fee.
Redraw facility. If you make extra payments you can get the money back later. This can have considerable tax advantages and provide useful security as you can store your savings in your mortgage. Some redraw facilities are much easier to access than others and may involve some costs.
Mortgage offset accounts. This lets you deposit money in an account and receive interest in the form of a reduction in the interest due on your loan. Because offset accounts don't actually pay you any money, they don't add to your taxable income, so like redraw facilities they offer tax advantages. Some offset accounts can be used as your everyday transaction account, while others are only suitable for putting your savings into.
Repayment holidays. Some home loans allow you to take a "repayment holiday" for a short period such as six months, for example, if you just had a baby. Sometimes you can only make use of this feature if you've made extra repayments, or you may have to make higher repayments after the repayment holiday to make up for it.
Fee Exemption. Some lenders may give you an exemption from the fees and charges on other accounts such as a free transaction account.
Expert assistance
According to Cannex, the financial research company, there are over 2,000 home loan products on the market today with varying features, fees and interest rates.
Therefore finding the right home loan will take some time, but it can save a lot of money and stress. This is where a mortgage broker can help. We will explain your options, match your needs with lenders’ products to get you the right home loan, and assist with paperwork and loan application forms.
Here are some tips to negotiate the mortgage maze of over 2,000 home loan products to find the right one for you.
CHOICE, the largest independent consumer organisation in Australia, makes a very interesting statement about the complex world of home loans:
“Home loans are no longer just about signing up for 25 years and making regular payments.”
Whilst the interest rate is a very important feature for most borrowers, flexibility and peace of mind are also important.
Look out for fees
Along with the interest rate costs, you should also check the regular fees and charges. Fees and establishment costs can make a big difference to the amount you pay.
The comparison rate, or annualised average percentage rate (AAPR) is an 'effective interest rate' that takes into account these charges, making it easier to compare loans.
Typical fees include:
Application fees. Lenders may charge an upfront establishment fee and application fee.
Valuation fees. Lenders may also charge for a valuation of the property. If you're concerned you may not meet a lender's income requirements for the loan, ask them to check first, before going ahead with the valuation, as you may have to pay for the valuation even if your loan doesn’t get approved.
Exit penalties. Check the costs for early repayment of the loan or refinancing. Many loans have no payout penalties other than normal discharge costs, but if they exist they can be steep, particularly in the early years. They can be a flat fee, several months' interest or a percentage (around 1%) of the original amount borrowed.
Lender's mortgage insurance. Depending on how much you borrow compared with the amount you paid for your house, you may be required to take out lender's mortgage insurance. Typically you will have to insure if the Loan to Value Ratio (“LVR”) is over 80%. This insurance can be expensive, especially if you want to borrow close to the value of the property.
Features
Home loans have many different features which can affect their overall cost and convenience:
Extra repayments. Some loans, particularly those with a fixed interest rate, may limit the amount you can pay off your loan without having to pay a break fee.
Redraw facility. If you make extra payments you can get the money back later. This can have considerable tax advantages and provide useful security as you can store your savings in your mortgage. Some redraw facilities are much easier to access than others and may involve some costs.
Mortgage offset accounts. This lets you deposit money in an account and receive interest in the form of a reduction in the interest due on your loan. Because offset accounts don't actually pay you any money, they don't add to your taxable income, so like redraw facilities they offer tax advantages. Some offset accounts can be used as your everyday transaction account, while others are only suitable for putting your savings into.
Repayment holidays. Some home loans allow you to take a "repayment holiday" for a short period such as six months, for example, if you just had a baby. Sometimes you can only make use of this feature if you've made extra repayments, or you may have to make higher repayments after the repayment holiday to make up for it.
Fee Exemption. Some lenders may give you an exemption from the fees and charges on other accounts such as a free transaction account.
Expert assistance
According to Cannex, the financial research company, there are over 2,000 home loan products on the market today with varying features, fees and interest rates.
Therefore finding the right home loan will take some time, but it can save a lot of money and stress. This is where a mortgage broker can help. We will explain your options, match your needs with lenders’ products to get you the right home loan, and assist with paperwork and loan application forms.
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