Own your own home sooner with a competitive mortgage
The Australian mortgage and home loan market is highly competitive. When you begin to research and compare, it may be a surprise to find out how many home loan lenders are in the market and how their terms and conditions could differ. For example, a lender might offer a great honeymoon interest rate but you'll often find that you end up paying a rate that could cost you a lot more in the long run.
Read on to find out how to compare home loan features and rates.
Today's mortgage comparison
Rates last updated May 27th, 2017.
- Australian Unity Kick Starter Home Loan
Interest rate now 3.79%
May 4th, 2017
- Newcastle Permanent Building Society Fixed Rate Home Loan - 2 Year Fixed (Owner Occupier Special Rate, P&I)
Interest rate is now 3.79%
May 8th, 2017
- Newcastle Permanent Building Society Fixed Rate Home Loan - 3 Year Fixed (Owner Occupier Special Rate, P&I)
Interest rate is now 3.89%
May 8th, 2017
Budget first, enquire later
You might be tempted to run off and start enquiring about mortgages right away. However, the first thing you need to do is draw up a budget to work out exactly how much money you can realistically allocate to pay for your mortgage.
Are you within your budget?
You should draw up a budget on paper as it will give you a better picture of your financial situation. The good news is that it isn't hard to do. All you have to do is make note of all your earnings after tax as well as those of your partner. Then, check what your monthly spending is, which could include fixed costs that need to be covered including food, rent, power, water, credit cards and so on as well as other types of expenses like entertainment, fuel, parking and savings.
Once you've completed your budget you will know what your financial situation is and will have a better idea of what to look for when studying mortgage comparison sites.
Different types of home loans
Once you start shopping around for a home loan, you will discover that there are different types of mortgages available. Before you compare them, it's important you are aware of the most common types of loans, which will enable you to make an informed decision.
Basic and Standard Variable Rate Loans
A variable interest rate loan features an interest rate that can rise or fall depending on market conditions and the official cash rate set by the Reserve Bank of Australia.
A basic variable loan usually features a lower rate than a standard loan because it often lacks some of the features offered on standard variable rate loans.
Fixed Interest Rate Home Loan
A fixed rate home loan is one where the interest rate is fixed for a set period of time, which usually varies between one and five years, but can be longer depending on the lender. Once the fixed rate period is up, the rate reverts to a variable rate, or your lender may offer the opportunity to fix for another period of time.
These home loans sometimes lack the features and flexibility of variable rate loans, but offer certainty that your repayments won't change for the term of the fixed rate.
Split loans combine both fixed rate and variable rate loans in a single loan. This allows you to fix a portion of the loan while the rest remains subject to variable rates. The advantage of a split loan is that it offers a certain level of flexibility but it still allows you to hedge your bets and budget more easily since you know how much at least a portion of your repayment will be over the fixed rate period.
Package loans allow you to group a number of banking products together. They usually offer discounts on home loan interest rates, fees and other banking products in exchange for an annual fee.
Line of Credit Home Loan
A line of credit works allows you to borrow against the equity you have in your property. Equity is the difference between the value of your property and the remaining balance on your home loan.
This type of home loan doesn't require a set repayment every month like a standard mortgage does. You will receive a credit limit from your lender which you can use for purchases. Interest is charged on the amount of credit you use.
Low-Doc Home Loans
Low-doc home loans a solution for people who are self-employed and want to purchase a home. They require different documentation from standard home loans.
Bad Credit Home Loans
If you've had credit misadventures in the past, it could make applying for a mortgage troublesome. However, there are some lenders out there who will still work to get you a home loan. It is important to keep in mind that the interest rates may be higher than other loans.
Other factors to consider in your comparison
Besides the type of loan, you also should compare both interest rates and fees.
The interest rate is the biggest cost associated with your loan, which is why you really need to shop around to find the best rate which matches your loan type. Remember, though, that the interest rate isn't the only cost associated with a home loan.
Don't forget the fees
When shopping for a home loan, most people tend to focus on the interest rate and while it is an essential component that needs to be evaluated, it's definitely worth checking out what other fees you might be charged. You need to look at annual fees, exit penalties, mortgage insurance, ongoing account maintenance fees, valuation fees, application fees and more.
Look at these fees very carefully because they can have a significant impact on your loan and you could end up paying thousands of dollars in fees that you could have avoided. For example, some home loans will charge a fortune if you want close out your loan early to refinance, which would nullify any benefits you might gain from a new loan with a lower interest.
What you can do to get the best possible rate
There are certain things you can do to make sure you get the best possible rate on your home loan:
Most lenders will require proof that you are financially responsible. This means that you are going to have to provide proof that you have some savings. By putting your savings up as a down payment, you are also taking on some of the risk, which makes most lenders more comfortable about giving you a loan with a more attractive rate. A good savings history also demonstrates to a lender that you have financial discipline.
Good credit history
It's worth checking your credit file before you apply for a home loan so you don't run into any nasty surprises. Generally, a better credit score will improve your chance of being approved for a competitive rate.
Know your property and financial goals
You need to do your research and find out which type of loan is best suited to your needs and what the best type of property is for you. Once you know exactly what you are looking for, it's much easier to find a home loan with an attractive rate.
Take your time and do the research
If you take the time to do your research and study all the home loan offers available on the market, you will find it much easier to find the ideal mortgage for your particular situation.