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Things to consider when comparing home loans

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How to compare home loans

A low interest rate is the most common feature borrowers look for when comparing home loans. However, there are lots of other features that also affect how much you pay for your home loan.

Home loan fees such as application fees, annual fees and monthly fees can add up. Customer service options like 24/7 support by phone or online message can set lenders apart from each other even when their loan products have similar features.

To know if you’re getting the right home loan product, it’s important to understand what you’re looking for so it’s easier to compare home loans. Here’s a quick guide to everything you need to know about comparing home loans:

Comparison rate

Looking at the comparison rate of your home loan can be extremely helpful. The comparison rate or ‘Annual Average Percentage Rate’ (AAPR) includes the interest rate and ongoing or upfront fees over the life of the mortgage combined into one percentage figure.

This can help homebuyers see a more accurate representation of the loan.  

However, the advertised interest rate is not necessarily the rate your mortgage lender will give you. Lenders offer different rates to different borrowers depending upon factors like the size of their deposit, whether they want an interest only loan, whether it is for an investment or owner-occupied property and other factors.

Key fact sheets

Key fact sheets are another important tool that can help you compare home loans. They give you the information you need to compare features when shopping for a home loan.

A key fact sheet is a document that summarises the loan you’re considering, including a personalised comparison rate. It includes an estimated lifetime cost for your home loan, the size of monthly and annual repayments and also explains how monthly mortgage repayments will be affected if interest rates increase.

Key fact sheets can be obtained from your lender. They are required by law to provide a fact sheet to a customer when requested.

Loan Comparison Calculator

Using a home loan repayment calculator allows you to compare home loans easily. This tool can give you a rough estimate of repayments instantly. Just enter different loan amounts, terms, interest rates, and fees to find out the repayments.

Interest rates

Look at how interest rates differ between various lenders. Compare and contrast them against each other, and see which lender offers the most competitive rate. You should check how their fixed and variable rates differ from their competitors.

Associated fees

Lenders will charge various fees, so be sure to check what associated fees and charges are levied. Valuation fees, legal fees, application fees, monthly or annual fees, late repayments and discharge fees are some of the fees you need to compare.  

Offset accounts

Linked to your home loan, an offset sub-account can save you interest payments over the life of your loan. The money in the facility is offset against your mortgage, reducing the amount of interest you need to pay. So if your account has $20,000 in it, and your home loan is $400,000, this means you’ll only pay interest on $380,000.

Extra repayments

Does the loan allow you to make extra repayments without charge? Paying more than the minimum amount can help you pay off your home loan much faster.

Before you partner with any lender, make sure to investigate their loan options so you can see what fits your personal or financial situation the best. 

About the article

As Australia's leading online lender, loans.com.au has been helping people into their dream homes and cars for more than 10 years. Our content is written and reviewed by experienced financial experts. The information we provide is general in nature and does not take into account your personal objectives or needs. If you'd like to chat to one of our lending specialists about a home or car loan, contact us on Live Chat or by calling 13 10 90.

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