Things to consider when comparing home loans
A low interest rate is the most common feature borrowers look for when comparing home loans. However, that’s not the only factor you need to consider when choosing a loan.
Loan features and ongoing fees can significantly affect how much and how quickly you can pay off your mortgage. Then there are customer service options like 24/7 support by phone or online message, which 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.
Pay attention to the comparison rate
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. Usually, the higher the comparison rate, the more you have to pay over the life of the loan.
Take note, the advertised interest rate is different from the interest rate the mortgage lender gives you. Lenders offer different rates to different borrowers depending on factors like the size of their deposit, whether they want a period of interest only repayments, whether it is for an investment or owner-occupied property amongst other factors.
Ask for a loan key fact sheet
A key fact sheet is a document that summarises a lender’s loan offer. It includes a personalised comparison rate, an estimated lifetime cost for your home loan, and the size of monthly and annual repayments. It also explains how monthly mortgage repayments will be affected if interest rates increase.
You can compare home loans more easily when you have all the facts and can see the estimated personal rates for yourself. You’ll know which home loan offer fits your needs better.
Key fact sheets can be obtained from the lender. They are required by law to provide a fact sheet to a customer when requested.
Use a loan repayment calculator
An online home loan repayment calculator gives you a rough estimate of your mortgage repayments. You can change the data to see how different interest rates, downpayment amounts, terms, and the likes to see how it can affect your possible repayments, as well as the impact on the overall cost.
Although these loan repayment calculators aren’t the most accurate, they can give you a better idea of how a home loan can affect your finances.
Look at the associated fees
Loan costs aren’t limited to interest fees. Home loans have various fees depending on the lender. These fees could include one-off payments such as application fees, valuation fees, and settlement fees. While others could be recurring, like monthly or annual fees, late repayment fees, additional payment fees, and redraw fees.
These associated fees may seem small when calculated individually, but they could easily snowball and significantly increase the cost of your home loan. Before applying for a mortgage, make sure to get a comprehensive list from the lender about all the fees they charge.
Find useful home loan features
Good home loan features can make managing your loan easier and help you pay it off faster. If your home loan comes with an offset sub-account, you could save on your interest payments. The money in the offset sub-account is offset against your mortgage, reducing the amount of interest you need to pay. If your account has $20,000 in it, for example, and your home loan is $400,000, this means you’ll only pay interest on $380,000.
Another useful home loan feature is free unlimited extra repayments. Paying more than the minimum amount can help you pay off your home loan much faster. Some lenders do charge you if you make extra payments, so make sure you know the terms and conditions of the loan before applying.
Look into their customer support
Home loans are a long-term partnership with a lender. Mortgages usually have terms between 15 and 30 years, which means you’re tied to that lender for decades unless you choose to refinance. If your lender doesn’t have adequate customer support, you might find yourself at a loss and confused about the terms and conditions of your home loan.
When reviewing home loan options, it’s best to consider how easy it is to get customer support and how helpful the loan representatives are. Do they have a 24/7 call or chat line? How long does take for them to reply to queries and concerns? These are important questions you need to ask.
How do you choose the right home loan?
The best tool in your arsenal is research. Always look at the entirety of the loan and not just the interest rate. Before you partner with any lender, you need to investigate their loan options so you can see what fit your personal and financial situation best.
At loans.com.au, we offer a range of home loan options for you to choose from. Get in touch with our friendly lending specialists to find the ideal finance solution. Call 13 10 90 or get started by applying online today!
Disclaimer: The information provided in this article is general in nature and does not constitute financial or legal advice. Please seek professional advice tailored to your circumstances before making any financial decisions.
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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.
