May 23, 2016
With interest rates currently sitting at historical lows, we find that many borrowers wrongly assume that they are in the best home loan product just because it boasts a competitive interest rate.
While the interest rate is an important factor, it is also imperative that home loan customers look beyond the available rate when selecting a mortgage to ensure they're in the right home loan product for their needs.
Factors that should also be considered include home loan features, fees and lender servicing - this will allow customers to select a loan that is actually right for their overall needs, rather than just on rate alone.
For those who are currently searching for a home loan, here are a few features to consider to ensure you select a loan that is best suited to all of your financial needs.
Fixed or variable rate: Borrowers looking for certainty around their mortgage repayments might consider a fixed rate loan. But while fixed rate products offer interest rate security, they often lack other features including repayment flexibility.
Loan redraw or offset: Having a redraw facility or offset account could help borrowers to save thousands of dollars over the life of their loan. With a redraw facility, a borrower can put money straight on the loan which can help them to reduce their interest and principal loan amount. Meanwhile, an offset account allows borrowers to put money against the loan indirectly, reducing the interest that needs to be paid.
Loan fees: There are many kinds of home loan fees that borrowers may incur, including application fees, monthly account fees, redraw fees, additional repayments fees, rate lock fees and break fees. A qualified mortgage broker can provide a full list of features and fees that home loans have.
Loan term: The length of a home loan will impact a borrower's repayments and the amount of interest they pay on the loan. For example, if a borrower takes on a 30-yr $500,000 mortgage with an interest rate of 5%, principal and interest repayments are $2,684 per month. Total loan costs are $966,278 and the interest component is $466,278. If that same loan was paid out over 40 years, a borrower's monthly mortgage repayments would be $274 lower, but they would be required to pay an additional $190,993 in interest over the life of the loan.
Lender: Before selecting a lender, borrowers need to identify what it is they want from their lender. Features such as after hours service, call-centre support or weekend assistance might be worth checking your lender provides before deciding upon any individual lender.