Choosing the best mortgage is all about knowing what to look for.
Your mortgage will most likely be the single biggest financial commitment you ever make, so it’s important to get it right.
Choosing the best mortgage comes down to educating yourself on the factors that influence a home loan’s value. The process may seem intimidating, but once you know what to look for you can compare and choose the best mortgage with confidence. Read on to learn more or start comparing in the table below.
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What’s the best mortgage for me?
Interest rate is the home loan feature most people pay attention to when deciding the best mortgage for them. This is no surprise, because your mortgage interest rate is the single biggest factor determining the price you’ll pay over the life of your home loan.
It’s easy to compare mortgages by interest rate, but you’ll have to dig a bit deeper to determine if a home loan product is the best mortgage for you. There are a few things you’ll have to keep in mind.
Fixed or variable?
When you’re deciding on a mortgage, one of the first decisions you’ll need to make is whether to choose a fixed or a variable interest rate.
A fixed rate is locked in for a predetermined period of time, generally from one to five years. During this time, your rate will remain the same even if interest rates in the broader market fluctuate.
This means your repayments won’t change, which makes budgeting for your mortgage repayments simple. However, it also means you won’t benefit from any rate cuts. You also won’t be able to exit your home loan before the fixed rate period ends, unless you pay some significant break costs.
A variable rate mortgage is one in which the rate can change at any time. Rates change for a variety of reasons, including bank funding costs, the monthly Reserve Bank cash rate decision and competitive pressures.
Variable rate home loans mean you’ll see your repayments reduce if interest rates fall, but you’ll see them increase should rates rise. These loans do tend to offer more flexibility, however, and allow you the option to refinance without paying break costs.
There’s no right or wrong answer with fixed versus variable loans. It all depends on your own goals and priorities.
Watch: fixed versus variable loans explained
Pay attention to the comparison rate
When you’re comparing mortgage interest rates, make sure to have a good look at the comparison rate. A comparison rate gives a clearer indication of what you’ll actually pay for a home loan.
A comparison rate takes the loan’s interest rate, adds in fees and then expresses this as a percentage. Some loans with an attractive-looking interest rate could actually carry high ongoing fees, meaning they’re not the great deal they appear to be at first glance. Paying attention to the comparison rate will give you a clearer picture of a mortgage product’s true value, and help you avoid nasty surprises.
Look for revert rates
Some mortgage products also advertise rock-bottom interest rates for a limited time before reverting to a higher rate. These loans are often called introductory rate home loans.
This doesn’t mean you should avoid introductory rate home loans. They can be great mortgage products with incredibly low rates. It does mean, however, that you’ll want to pay attention to what’s known as the revert rate.
The revert rate is the higher interest rate the loan will revert to when the introductory period ends. You should be able to find this rate in a home loans key facts sheet, or you can ask your lender.
One way to get a good idea of an introductory rate home loans revert rate is to pay attention to the comparison rate. The comparison rate takes into account the loan’s revert rate. That means if you find an introductory rate home loan with a comparison rate much higher than the advertised rate, you can be fairly certain it will revert to a high rate at the end of the introductory period.
The best mortgage for you could also be one that includes helpful features. Home loans aren’t all created equal, and some offer features that can give you much more control over your mortgage.
For instance, an offset account allows you to reduce the amount of interest you pay, and potentially shave years off your mortgage. It does this by providing a linked transaction account that offsets your home loan balance. This means that if you have a $500,000 home loan with $50,000 in an offset account, you’re only charged interest on $450,000.
A redraw facility allows you to access any additional funds you’ve paid on your mortgage. If you’ve managed to make extra repayments and gotten yourself ahead, a redraw facility will allow you to withdraw those funds.
A split facility can also be a handy feature to give you access to more than one mortgage product. A split facility allows you to split your mortgage between different products. For example, you could choose to have a portion of your home loan on a fixed rate and a portion on a variable interest rate.
Features can help you take more control of your mortgage, and can save you some serious money in the long-term. However, many of these features also come with associated fees. Before choosing a mortgage packed with features, make sure you’ll actually use the features you’re paying for.
Comparing the best mortgages
Now that you know what to look for, you can compare mortgages to find the best mortgage for you. Take the time to look for mortgage products that offer the right mix of rates and features to suit your situation and help you achieve your financial goals.
Use the table above to compare mortgages, and you’ll be well on your way to finding the right product for you.