Home Loan Tips

Home Loan Tips

home loan tipsHome loan tips

1. Add up those home loan fees
2. Additional repayments
3. Ask about ‘professional package’ discounts
4. Be careful of ‘honeymoon’ intro rates
5. Beware fixed rates
6. Can’t get a standard loan? There are alternatives
7. Caution the key in current housing market
8. Check if there are ongoing fees
9. Check your statements for errors
10. Compare loan features, not just rates
11. Consider a portable loan
12. Do you need a redraw facility?
13. Do your homework
14. Don’t fall foul of the taxman
15. Don’t rely solely on comparison rates
16.Ensure your mortgage broker really delivers
17. Keep accurate records
18. Look beyond the banks
19. Look for flexibility
20. Make the most of rate falls
21. Make your surplus cash work harder
22. Pay your loan off quicker with fortnightly or weekly repayments
23. Quit smoking
24. Save interest with offset accounts
25. Save with a line-of-credit loan
26. Use your home equity to borrow
27. Win rate discounts for bulk business

1. Add up those home loan fees
Once you’ve saved up the deposit for a home, don’t forget to take into account all the extra fees that come with buying a house – some or all of these: stamp duty, legal costs, disbursements, mortgage insurance, pest inspection report, survey report, builder’s report, strata inspection report, loan application fee, valuation fee, registration fee, sundry fees like refinancing or switching fees.

2. Additional repayments
Making additional repayments beyond what’s required in your minimum monthly repayment is one of the best ways to reduce the total interest paid and term of your loan.
As a rule of thumb, every $1 in extra repayments you make early in the life of your loan saves around $2 in interest over the term of the loan, depending on the level of interest rates.
Consider either one-off lump sum payments when you have spare cash or commit to increasing your regular repayment amount.

However, make sure that your loan allows you to make additional repayments without penalty. Fixed-rate and basic (or ‘no-frills’ loans) often have restrictions on extra repayments or charge a fee for the privilege.

Use BankChoice’s Extra repayments calculator or Lump-sum repayment calculator to determine how much time and money can be saved.

3. Ask about ‘professional package’ discounts
If you’re earning more than $50,000 a year, or $80,000 or more with a partner, ask lenders and brokers about the “professional packages”. The home loan interest rate is usually discounted by 0.5 per cent on which ever loan you choose. Relationship discounts are also available from banks and credit unions for those borrowers who consolidate a range of planning business with the one institution. Home loan discounts, savings account fee waivers and credit card annual fee waivers are commonly offered.

4. Be careful of ‘honeymoon’ intro rates
Home lenders entice borrowers to their home loans with attractive low introductory rates. These rates may be up to 2 percentage points below the standard rates for home loans and look therefore look very attractive. But these “honeymoon rates” only last for six months to a year before automatically reverting to the standard rate offered by that lender. By all means take advantage of these discounted rates but don’t let them dictate your choice of loan. It is far more important to compare loans by felxibility of features and the standard rate that you will face for years into the future. The ‘comparison rate’ that lenders must publish for each loan is a much better tool with which to compare the true interest and fees costs of different loans.

5. Beware fixed rates
Attractive when interest rates are rising, fixed-rate loans also lock you in for a fixed term and as such are less flexible than variable-rate loans. You may not be able to make additional repayments or pay the loan out early without facing high penalty charges.
Fixed rate loans suit borrowers who really value the certainty of knowing exactly what their future repayments will be – property investors and borrowers on a tight budget, for example.

Borrowers trying to beat rate rises by picking the right time to lock in to a fixed rate are playing a risky game. Such borrowers are taking a gamble on the future and the longer the period you fix, the more of a gamble it is. Predicting interest rates three to fives years into the future is something akin to picking Lotto numbers.

6. Can’t get a standard loan? There are alternatives
If the banks, building societies and credit unions won’t lend to you because you’re self employed, newly arrived in the country or have a poor credit history, consider the booming non-conforming and “low doc” loan market. A number of non-bank lenders offer loans which especially cater for this type of borrower. The interest rates on non-conforming loans are generally higher but come down after a few years of on-time repayments.

7. Caution the key in current housing market
Home owners and property investors would be wise to adopt greater financial caution amid uncertainty in the outlook for property prices and interest rates. Continued growth in household debt, easy lending practices, top-heavy house prices and the upturn in the interest cycle make a case for protecting yourself against the increasing chances of a property downturn. In the current climate, there are number of simple steps that both prospective buyers and existing borrowers can take to avoid their investment being put at risk:
New borrowers:

allow for higher interest rates of up to 1 percentage point when budgetting for repayments over the next two years

maximise your deposit and try to keep your LVR as low as possible, 90 per cent at the most

ensure personal debts like credit cards and car loans are under control before committing to a property loan

buy for the long term, short-term speculation is more risky now than ever

Existing borrowers:
make extra repayments where possible to reduce your exposure to higher rates and falling prices

consider switching at least part of your loan to a fixed rate BUT check the flexibility of such loan arrangements. Extra repayments? Early payout penalties?

consider carefully further borrowing against the equity built up in your home – can you afford higher repayments if rates are 7 or 8 per cent?

rather than for further spending, use home equity finance to consolidate existing higher-interest debt at the lower home loan rate.

8. Check if there are ongoing fees
Many banks now charge monthly or annual administration fees on home loans. When comparing the cost of different loans, don’t just look at the interest rate, look at the ‘total cost of borrowing’.
Many lenders are using ‘average annual percentage rates’ (AAPRs) as a means of comparing the true or total cost of loans. Although this measure incorporates fees as well as the interest rate, they can be misleading because an AAPR will vary on a particular loan depending on the amount borrowed.

9. Check your statements for errors
There are claims that more than 50 percent of home loan statements contain calculation errors. Simple mistakes, like the entry of the incorrect balance or the application of the wrong interest rate at the wrong time can be costly and mostly favour the lender. We all make mistakes, even bank computers make them and that’s why borrowers should keep a close eye on loan statements. Various software for your home PC is available that can run a check on your statements.

10. Compare loan features, not just rates
The more flexible the loan, the higher interest you’ll pay. A variable loan which allows you to draw against repayments or offset savings against the mortgage will have a higher rate than a basic loan. Always compare loans with the same features when looking for the best interest rate.

11. Consider a portable loan
A portable home loan allows you to sell one property and move to a new one without having to refinance, ie. pay out the old loan and take out a new one. This saves application and legal fees.
Most lenders will insist that the loan amount required for the new property is no greater than the existing amount borrowed.

12. Do you need a redraw facility?
A redraw facility allows you to make additional repayments on your mortgage, and then have access to the additional repayments if you need to.
However, the facility is normally only available on “Standard Variable” loans, which are more expensive than basic variable loans. Before you choose the more expensive loan, make sure you understand the conditions attached to the redraw facility as it may include a minimum amount and a fee every time you use it.

13. Do your homework
There are so many home loans on the market these days with an increasing variety of rates, fees and features that it really pays to shop around. Our home loan selector is designed to make comparing what’s on offer much easier.

9 Comments

  1. I really see what you mean, I’ve talked about this for a while now

    Reply
  2. Hi,nice blog post. Info is pretty interesting and saves me huge amount of time which I could spend on something else instead of googling 🙂 Im waiting for more, bye 🙂

    Reply
  3. Love the blog here. Nice colors. I am definitely staying tuned to this one. Hope to see more.
    if you need help drop in and see us at Kiwi Domain

    Reply
  4. According to the most of ads for home loan rates, rates are at a record low. Of course, they would say that, now wouldn’t they! However, it is true; home loan rates are low at this time.

    Reply
  5. get paid when you take out a home loan You can earn up to $2000 just for using us as your broker.

    Reply
  6. I love your blog. I’ve added it to my favorite bookmarks and subscribed in a reader. Looking forward to reading more posts by you. Thanks.

    Reply
  7. you are really a good webmaster, you have done a wondeful job on this topic!

    Reply
  8. Are the banks having it both ways? Low interbank interested rates but sky-high loan costs for consumers?

    Reply
  9. Thank you for another fantastic blog. Where else could I get this kind of info written in such an incite full way? I have been looking for such information.

    Reply

Trackbacks/Pingbacks

  1. carol - Thank you......

Submit a Comment

Your email address will not be published. Required fields are marked *