Whether you’re a first-time home buyer or a seasoned investor, buying a home can be a minefield of paperwork and tough financial decisions, particularly when it comes to selecting the right home loan for you.
Once they get wind of your intention to purchase a home, your current bank is likely to bombard you with home loan marketing in an attempt to secure your account. Applying for a home loan that integrates seamlessly with your existing bank accounts may seem like the easiest option, but taking the time to fully explore your home loan options and compare the multiple offerings on the market can save you thousands of dollars in the long run.
Here are five reasons taking time to compare home loans may be in your best interests:
#1 You want a better interest rate
It’s easy to fall into the trap of ‘set and forget’ home loans, however this means many homeowners are unwittingly paying unnecessarily high interest rates on their accounts.
According to savings.com.au, the lowest advertised home loan interest rate is 1.99%, with a comparison rate of 2.47% (as of February 17, 2021). If you’re seeing interest rates below what you’re paying with other lenders, it’s time to re-evaluate your current situation.
Simply calling your current lender to ask if they can match or beat a rate advertised elsewhere may result in significant savings. If your current lender isn’t willing to give you a better deal, it’s time to shop around! Other lenders are hungry for your business and will likely provide better benefits than your current bank, even if only on an introductory basis.
#2 You have a low deposit amount
Most lenders want to see a deposit of 20% in order to approve a home loan. Unfortunately, due to the relatively high cost of housing, a 20% deposit on a mid-priced home can run well over six figures once stamp duty and other buying costs are factored in. This savings goal can be unrealistic for many home buyers, particularly those who are already paying rent.
If you have a deposit of less than 20%, you may be able to get approved for a home loan with the addition of lenders mortgage insurance (LMI), which protects the lender in the event that the buyer can’t keep up with their repayments.
Some banks will approve home loans with a deposit as low as 5% (albeit with potentially higher interest rates), and some banks will even approve no deposit loans if a family member is able to guarantee the loan against their existing equity, or with a cash gift.
If you have a lower value deposit saved, or you’ve been previously rejected with a small deposit, but now have a family member willing to guarantee your loan, one of these lending options may suit you.
#3 You want flexible options
Maybe you want to enjoy the benefits of variable rate changes. Perhaps, you’d prefer to play it safe with a consistent, locked in repayment. Or, maybe, you want the best of both worlds!
If your current lender doesn’t support the level of flexibility you’d like, there’ll be another lender willing to bend over backwards to win your business.
Loan repayments should be suited to your lifestyle and financial situation. By comparing different home loan repayment options across different lenders, you can ensure you understand the flexible payment offers available, and choose one tailored to your situation.
#4 You want more features
In all the excitement of buying your home, you might have chosen a no-frills home loan that serves you well, but now you’d like to get a bit more value out of your banking. In that case, it’s time to get comparing!
Offset accounts can be a valuable addition to a home loan package. If you have a significant amount of savings in the bank (or expect to), you can keep it in your offset account, and your lender will deduct that amount from the balance you ow before calculating interest repayments. In a nutshell, you can treat your offset account like an everyday transaction account, and any funds held within will save you money in home loan interest.
Different lenders have different offset account offerings, from partial offset accounts up to 100% offset. Comparing these offerings and associated fees will help you understand which option is best for you.
Another popular feature you may want to take advantage of is a redraw facility. Some banks and lenders let you make extra payments on your home loan, and allow you to then access the value of those additional payments in the form of a withdrawal, should you ever need quick access to cash. Lenders have different terms and fees associated with redraw facility options, however it’s another great option if you’re looking for a way to reduce interest payments and the life of your loan, without permanently losing access to your funds.
#5 Your situation has changed
If you’re in a situation where your home loan has been serving you well, but your personal goals or circumstances have changed in some way, now is a good time to review what alternative home loan options may be available to you through refinancing.
A borrower may look to refinance their home loan if they’re looking to consolidate multiple debts into their existing home loan, if they’d like to complete renovations to add value to an existing home, or if they’d simply like some extra cash for a big purchase. A borrower may also look to refinancing as an option if they would like lower repayments without borrowing any additional funds.
When refinancing for renovations or to gain access to cash, keep in mind that the banks may offer you a higher amount than you need or want. Although it can be tempting to accept the maximum loan offer, taking on more than you can handle can lead to disastrous mortgage related financial woes. Never borrow more than you can comfortably afford if rates were to increase.
Home loan options are as varied as we are, there is no single best option. Shopping around and doing your due diligence in comparing which home loans might be right for you, is the most reliable way to ensure you end up with the best repayment options, at a comfortable rate.