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PICKING A HOME LOAN
There are literally hundreds of products to choose from in the home loan market and it will get overwhelming. A broker can be good at this point because of their experience but if you are doing this yourself consider the following:
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TIME
Change your time horizon from 30 years to 4 years. Whether you like it or not, 4 years is actually the average life of a home loan and it’s getting shorter. That is generally the time it takes for you to either buy a new home, sell it for a change or just generally get pissed off with your bank or broker enough to refinance elsewhere.
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FEES
Factor in all the fees and their impact on your ability to open, hold and close the loan. A low rate loan with high fees may cost you more than you think
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BONUSES
Include the value of bonuses like cashbacks and rewards if there is one. Essentially a $1000 cashback can represent a discount of 0.25% on your interest rate in the first year (this obviously depends on your loan size).
PACKAGES
Consider packages that give you credit cards, transaction accounts and so on but have a look around to see if you can create your own package for cheaper. Remember, this line of products like all others were created with profitability in mind. Transaction accounts are far more valuable to banks than you would expect.
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FEATURES
While there are hundreds of different loans in the market the features available across the board don't really vary from bank to bank that much. You need to be aware of what is available in order to select the most suitable home loan. Fixed and variable rates, redraw facilities, extra repayments, portability are just some of the terms that will be thrown at you. First home buyers tend to favour products with more basic features in order to avoid fees
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INTEREST RATES
This is one of the most important things when shopping around and it’s normally what captures people’s eye when they are looking. The reason I have mentioned them last in this list is that they are directly influenced by the features you want and the time you hold the loan for. You need to find the right mix in a loan that will work for you. Don’t be afraid to branch out from the ‘big four’ in order to get a cheaper rate – it may save you thousands.
To sum up the market there are variable loans which come in the form of introductory offer products, basic products, and lifetime discount products. The rates of these loans can change at the discretion of the bank, normally relative to official interest rates set by the Reserve Bank of Australia.
Then there are fixed loans, which come in a range of terms normally 1 – 5 years and essentially lock in your repayment amounts over that period. Remember, cancelling your contract within the fixed contract period will cost you.
