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Choosing the best home loan

How to choose best home loan has become more complex as the industry becomes more competitive.

Making yourself familiar with a few of the popular home loan products available will give you a strong head start when we get together to discuss your home loan options.

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What is most important in a home loan to you?

When choosing the best home loan (best mortgage) and looking for a good deal on a home loan, the interest rate matters.

A home loan is a long-term debt, so even a small difference in the interest rate adds up over time.

However, while the interest rate is important, the cheapest rate might not be the best home loan for your requirements.

Other factors need to be considered before choosing a lender, you need to understand the 3 P's....

Policy

What is the lenders policy?

All lenders have their own policies, and these can vary from lender to lender.

If you do not meet the lenders policy, this will cause your home loan application to be declined.

However, if you are utilizing the services of a Mortgage Broker, with their knowledge of lender policies, your home loan application is more likely to be approved.

Product

These are the features in a home loan. With the help of a good Mortgage Broker, they will advise you of what features you may need in your home loan such as: a variable rate or a fixed rate, a basic home loan or a loan with an offset account, a construction loan or a bridging loan.

While most lenders products are similar, there are some differences.

For example: some lenders may have a redraw facility on a fixed rate while other lenders do not.

Price

Price, this is the interest rate.

When you have considered the lender Policy and the home loan products with the features you need, then you can seek a mortgage lender with the best interest rate and lowest fees.

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Home Loan Features

Home loans come with different options and features.

Home loan Features

These features can offer more flexibility or let you pay off your loan faster. Some options could cost you more, so make sure you are only paying for home loan feature you really need.

Home loans are available in many different variations, there are introductory rates (AKA honeymoon rate), fixed rate and variable rates offered by hundreds of lenders and repayment types with interest-only (I/O) or principal & interest (P&I).

Your Home Loan Consultant will save you time and money in sorting through all the options. This is what we do all day every day (and some nights too). With access to over 25 lenders and over a hundreds of different home loan products to choose from. It is not all about the interest rate, you need to look at fees and features of a home loan to be able to compare them properly.

You need to get the right advice to make sure you make the right decisions.

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Standard Variable Loan

Standard variable home loans (SVR) are Australia’s most popular type of home loan.

The interest rate varies throughout the loan term. These loans generally offer excellent flexibility. Come with great features such as an offset facility, redraw facility, no limits on additional repayments and in most cases, no early pay-out penalties.

Pros
  • More flexibility as can make additional repayments without penalty fees
  • Lump-sum payments can be made without incurring a penalty
  • Redraw facility allows you to access any additional home loan repayments 
  • If interest rates fall, your repayments will fall
Cons
  • If interest rates rise your repayments will rise.
  • Major lenders interest rates offer discounts off the standard variable loan but you need to negotiate for the amount of discount that will be applied
  • To get a discount off the standard variable rate you generally have to pay an annual fee
Basic Variable Loan

Basic variable rate home loans typically offer lower interest rates and fewer features than the standard variable rate home loans. You often have the option to pay for any additional feature required. Interest rates and repayments will vary throughout the loan term.

Pros
  • Relatively lower interest rate
  • Lower repayments
  • Lower fees
Cons
  • Many of these home loans do not have the same features or flexibility as other variable rate home loans.
  • When you want to combine a fixed rate with a variable rate, some lenders won't allow to mix loan products or apply a higher rate and ongoing monthly or annual fees.  
Fixed-Rate Loan

Under a fixed-rate home loan, the interest rate is fixed for a specified period, usually between one and five years.

This loan gives you the certainty of knowing exactly what your monthly home loan repayments will be and peace of mind knowing the repayments won’t rise. However, you won’t benefit if interest rates go down during the fixed rate term.

Pros
  • Locking in your home loan interest rate for selected period of years, if interest rates rise your repayments won’t
  • Certainty of your home loan repayments make it easier to budget 
Cons
  • Reduced flexibility. Most lenders will limit the amount of extra repayment allowed during the fixed rate term. 
  • Extra repayments above the allowed limit may incur a fixed rate break fee
  • If you need to sell your property or want to refinance to another lender during the fixed rate term, breaking fees will apply 
100% Offset Loan Account

A 100% offset home loan account is very similar to an all-in-one home loan. However rather than putting all your salary and other income into your home loan, your money goes into an offset account that is directly linked to your home loan.

Any balance in the offset account is 100% ‘offset’ against your home loan. This reduces the amount of interest you have to repay, making your money work harder for you.

Pros
  • Can save you a substantial amount of home loan interest if used correctly
  • An Offset Account operates like a normal savings transaction account, so you don't need to make changes to you how you currently do your banking.
  • Interest on your home loan is calculated daily, so soon as your wage goes into your offset account you are reducing the interest charged.
Cons
  • May have higher monthly or annual fees attached to the account.
  • May require a minimum balance in the account
  • Be sure your Offset account is an 100% offset. Some lenders may allow an offset of 40% or 50%
Bridging Home Loan

A bridging home loan is a  short term loan (often no longer than 12 months) designed to allow you to finance the purchase of a new property before you have sold your existing property.

Pros
  • A bridging home loan allows you to secure the new property before you sell your existing property
  • When making an offer for the new property, there is no need to have a clause in the contract " subject to selling your existing property" making your purchase offer more likely to be accepted.
  • Avoid the costs of renting and moving twice.
Cons
  • If you cannot sell your existing property, you take the risk of having to manage the finances on both properties  a minimum balance in the account.
  • Some lenders will charge a higher interest rate while the bridging loan is in place.
  • The interest is capitalised on top of the peak debt, the longer it takes to sell your property, the more your home loan will accrue interest.
Interest Only Home Loan

Interest-only home loans offer borrowers lower repayment options while maintaining many of a traditional loan’s features.

This type of home loan allows you to pay only the interest component on a mortgage; it does not reduce the principal component.

Interest Only home loans are a popular choice for investors seeking good capital appreciation on their investments while maintaining cash flow.

Pros
  • Lower repayments during the interest-only period could help you pay-down other more expensive debts.
  • May be useful for short-term loans, such as a bridging loan or a while completing a construction loan
  • If you're an investor, you could maximize your tax deductions from an investment home loan while reducing other non-deducible debts.
Cons
  • The interest rate could be higher than on a principal and interest home loan. So you pay more over the life of the loan.
  • You are not reducing the principal during the interest-only period, so the amount borrowed doesn't reduce.
  • Your repayments will increase after the interest-only period expires, which may cause financial hardship.
  • If your property doesn't increase in value during the interest-only period, you won't build up equity and this can put you at risk if there's a market downturn, or your circumstances change and you want to sell.
Conclusion

Your Home Loan Consultant will take the time to understand your needs and objectives, discuss your financial circumstances, and identify your home loan requirements.

As a first step, we will discuss your property purchasing goals and future goals, factoring in your home loan requirements in light of your lifestyle, job, family and other aspects.

Once we have a clear understanding of your financial situation and goals, your mortgage broker will be able to advise you on your home loan options with the features you desire.

We will help you find the best home loan

for your situation!

For more information contact Your Home Loan Consultant on 0401 388 153

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