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.
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's higher than anything on the market. Basically, one year of a very low rate definitely doesn't make up for 30 years paying a higher rate than everyone else and it will definitely cost you a lot more in the long run.
Basically, you have to decide whether it's more important to you to pay off your mortgage as quickly as possible, which is more achievable when you don't have a bunch of extra costs to deal with, or you prefer to have these features, which might make life easier for you now, despite the fact that it could take you a few extra years to pay off your mortgage.
Today's mortgage comparison
Rates last updated April 25th, 2017.
- Newcastle Permanent Building Society Premium Plus Package Home Loan - New Customer Offer ($150,000+ Owner Occupier, P&I)
Interest rate increases by 0.10%
April 10th, 2017
- Aussie Optimizer Variable Rate - LVR <= 80% (Owner Occupier + P&I)
Interest rate is now 3.86%
April 11th, 2017
- Newcastle Permanent Building Society Fixed Rate Home Loan - 3 Year Fixed (Owner Occupier Special Rate, P&I)
Interest rate is now 3.99%
April 24th, 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 allocate to pay for your mortgage. If you aren't aware of this figure, you could end up accepting a home loan with a payment scheme you will be unable to sustain, even if you think you'll be able to do it by cutting back in different areas.
Are you within your budget?
One of the easiest and most important actions you can take to secure your financial future and not have to worry about making mortgage payments is to draw up an objective budget, which will allow you to prioritise your spending.
You should draw up a budget on paper as it will give you a better picture of what your financial situation is. 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.
So, the money you spend now on rent as well as savings or entertainment or both could be allocated towards paying your mortgage, as well as any disposable income left after you've deducted all your expenses. However, to be on the safe side, make sure you give yourself a buffer of at least 3%, in case the cost of your mortgage goes up due to interest rates rising. The important thing is that 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 how well the country's economy is performing. This is because interest rates are linked to the interest rates set by the Reserve Bank of Australia and lenders will increase the rate they charge when the RBA increases the rate and vice versa.
Variable rate loans are available for a set period of time and come with a set regular repayment, which can vary according to the interest rates, as previously mentioned.
A basic variable loan usually features a lower rate than a standard loan because it is less flexible than the standard version in terms of making additional repayments, redraw facilities and paying off the loan early.
Fixed Interest Rate Home Loan
A fixed rate home loan is one where the interest rate is fixed at a certain level for a limited 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, you can either switch over to a variable rate to take out a new fixed term home loan at the rate valid at the time.
Fixed rate home loans generally come with a slightly higher rate than variable rate loans because you are locking in the interest rate. It is usually a good idea to get a fixed rate home loan when you think interest rates have reached a low and are set to rise in the near future.
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 next five years or so.
Package loans allow you to group all of your banking together and lenders will often offer a discount on your interest rate in the vicinity of 0.7% from their standard rates if you take this option. It's a very flexible approach to financial management but an annual fee does apply for the service, so make sure your savings are worth the annual fee.
Line of Credit Home Loan
Line of credit home loans have become very popular because they are highly flexible. A line of credit works much like a credit card except for the fact that the property being purchased will act as security and the amount of money you can borrow will be determined by the value of the property. 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 and then you can use it for purchases, just like you would a credit card. While having access to credit at all times might be useful, there is the temptation to put off paying the loan, which can cause problems later on down the line.
Low-Doc Home Loans
Low-doc home loans are ideal for people who are self-employed and want to purchase a home. Someone who is self-employed has different types of paperwork they can show a lender compared to someone who is in regular employment. A low-doc loan takes this into account and some of the requirements are not as strict, though the loan-to-value ratio is also generally lower than with a standard home loan and the interest rate can be a fair bit higher.
Bad Credit Home Loans
If you've had credit misadventures in the past, it could make applying for a mortgage or even refinancing 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 interest rates, of course and fees. Both of these can really impact your financial situation because making the wrong decision can lead to you spending a lot more money than you need to.
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. You should speak to at least three different lenders, if not more, to ensure you get the best possible quote for your mortgage. However, don't cross-compare rates or you won't get a clear picture. In other words, don't compare the rate on a variable rate home loan with the rate on a line of credit because the terms and conditions are different, which means interest rates will be different. Instead, make sure you compare rates across the board for the same type of 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. So, you need to look at things like 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. As the saying goes, nothing is free, so if you want to get an attractive rate then you are going to have to fulfil the following conditions:
Most lenders will require proof that you are financially responsible and 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. This is because they know people are less likely to default on a loan where they put some money up towards purchasing the property.
There are cases in which you can get a loan without a down payment but nowadays it is becoming increasingly rare. Additionally, these types of loans, when you can get one, are extremely expensive and generally not worth it in the long-run.
Good credit history
Financial responsibility comes in again but this time it's by proving that you have been good at managing your credit by paying off your debts on time. Thus, a person with a poor credit history is not going to get a low interest loan because they pose too much of a risk, whereas people with good credit are more likely to get an attractive 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. If you aren't aware of your needs, you can't expect another person to tell you what you need. Once you know exactly what you are looking for, it's much easier to find a home loan with an attractive rate.
There are plenty of resources available online to make your search for the most attractive home loan quite easy. There are various sites that conduct research and offer in-depth comparisons of all the products available on the home loan market, making it easy for you to find the best option for your personal situation.
However, you should also consider talking to a mortgage broker. While a broker won't be able to offer you all the products on the market, he or she can offer you advice and guidance on your application, which can often prove invaluable, especially since you don't have to pay anything for their services.
Likewise, you should consider talking to your current bank because they might be able to put together a good offer for you, especially if you've been with them for a while.
Take your time and do the research
You'll find that once you start checking out mortgage comparison sites, lenders offer different features with their mortgages. While certain features are useful from a financial viewpoint and offer a great degree of convenience, they generally aren't free. So, you have to consider whether or not it's worth paying extra for these features for the next few decades.
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. However, if you are finding it difficult to raise the cash to put down a sufficiently large deposit to suit a lender, you have the option of purchasing your home using a Rent to Buy scheme. This type of program is great for people with a relatively low income. The way it works is that you enter into a contract with a landlord according to which you commit to paying slightly more than the rent every week over a certain timeframe. The additional money is used to create a deposit and once the set period is up, you start purchasing the property.