For most of the last decade I used to work for banks with the main goal of increasing their profitability. I apologise up front for that. Now that the shoe is on the other foot I have learnt a few things to help you pick your next home loan and help you get one back on your bank.
There are literally hundreds of home loan products to choose from in the market and it can get overwhelming. Here are a few things we consider when finding our clients a suitable home loan.
Change your time horizon from 30 years to 4 years. I know you typical loan contract says 30 years but 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 for a better rate.
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 and sometimes accepting an annual fee is worth the cost of getting access to a better interest rate.
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).
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.
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. Click here to find out more about typical features available. Remember, don't neglect the impact features can have on your ability to save on interest. A higher interest rate loan with more features may actually be better for your situation relative to a low interest rate loan with no features.
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.
For help selecting your next home loan please feel free to contact us.