Compare home loans
Do you have the best interest rate on offer in the home loan market? Are your repayments higher or lower than the average? Are you missing out on features or discounts because you have not switched lenders in several years? All of these questions are reasons to compare home loans with a financial comparison website, like RateCity.com.au.
With thousands of home loan products on the Australian market, it can be difficult to know what the best product is for you. The easiest way to figure that out is to elect a series of products and place them side by side to see which ones come out ahead. Below, we explain how.
How to compare home loans
Before you start your home loan comparison journey, it can be helpful to come up with a list of what exactly you’re looking for from a mortgage. Some borrowers will want the lowest possible repayment rate, but that often comes at the cost of flexibility. Other borrowers may want a range of features, like offset accounts, redraw facilities and flexible repayment schedules, but that may cost a little more.
Once you have your list of desires, you’ll have the option to input them on the left hand side above. Start with entering how much you want to borrow for the property of your choice. You’ll then be asked to input how much your deposit is. This is important because higher deposits often expand your search results. Generally speaking, lenders favour borrowers who have a higher deposit because it reduces the risk on their side. If you have a deposit below 20 per cent, you may be required to pay lender’s mortgage insurance.
After you’ve put in your loan amount details, you have the option to select your loan term. The most common loan term for both owner-occupiers and investors is 30 years, but some borrowers opt for shorter loan terms depending on their circumstances. A few lenders also give you the option to borrow for terms of up to 45 years.
The next step is to select what type of borrower you are. Again, this will determine the interest rate for which you are eligible. Since a crackdown from the prudential regulator in 2015, lenders have been limiting investment lending through a number of measures, one of which is by charging slightly higher rates. A quick comparison will show that as an investor you may be charged up to a percentage point more than if you are an owner-occupier.
Customise your results
On the second half of the form, you have the option to enter a number of desired features in order to locate a loan that suits your needs. To begin with, you’ll be asked whether you want a fixed term or variable rate loan. A fixed term loan secures your interest rate, which means for the period of your loan, there will be no changes to your repayments, even if the Reserve Bank’s official cash rate changes. On the other hand, a variable rate loan may change when the official cash rate does. If the cash rate is on a downward trend, this could mean extra savings for you if your lender passes on the rate cut, but the opposite is true if the cash rate is trending upwards. Some borrowers also choose to split their rate between fixed and variable to lock in a bit of certainty, while making the most of a cheap market.
Next, you’ll be asked whether you’d like to pay principal and interest or interest-only. Principal and interest allows you to pay off the amount you’ve borrowed and the interest you accrue for the privilege. However, some lenders allow you to delay paying principal for a set period of time and simply pay the interest.
Select your features
After you’ve chosen your type of loan and repayments, the comparison tool will give you the option to show only loans with some popular home loan features, such as an offset account, a redraw facility and extra repayments. An offset account allows you to offset the interest you pay with a separate, but linked account, while a redraw facility lets you to redraw extra repayments you’ve made if you need to. Some lenders also allow you to make extra repayments if you have a good month or receive a one off windfall. This can help to pay off your loan quickly.
Choose your fees
One of the benefits of a financial comparison website like RateCity.com.au is that as well as looking at the interest rate, you can compare fees. High fees on a home loan can negate the impact of a low interest rate, so they should always be considered.
Some of the fees you’re likely to attract are as follows:
- Upfront fees – these are the fees the lender will charge you when you establish your loan. They sometimes include establishment fees, conveyancing fees, stamp duty and lender’s mortgage insurance. Upfront fees vary significantly between lenders.
- Ongoing fees – these are the fees your lender charges either monthly or yearly for the upkeep of your loan.
- Redraw fees – if you choose a loan with a redraw facility, sometimes those redraws attract a fee. This can be important to know for your own budgeting.
- Discharge fees – At the conclusion of your loan, your lender will charge you a termination fee.
Example: Finding a low rate investment loan
Roy is a first time investor who wants the lowest rate on offer in the home loan market. He wants a loan of $500,000 and has a deposit of $100,000. By selecting a loan term of 30 years using RateCity’s compare home loans function, he discovers there are more than 1500 loans available to him. Roy had previously asked his bank, one of the Big Four, about the cost of a home loan with them. He discovers that there are at least five lenders on RateCity that can shave up to $80 a month off the rate his bank offered, with interest rates below 4.2 per cent. Over 30 years, that’s a significant saving. Roy decides one of the loans on offer looks more compelling than the other loans available, due to its low rate and low fees. He simply clicks on the ‘view now’ button and is directed to the lender’s website.
Example: Flexibility seals the deal
Louise already has a home loan, but it doesn’t give her many benefits. She instead wants a loan that she can use to offset interest and make extra repayments once a year when she gets her tax refund. However, she doesn’t want to pay a high rate or high fees for those benefits. She inputs her specifications into RateCity and finds there are a dozen loans with no ongoing fees, but many features. Even better, many of those home loans are sub 4 per cent, when at the moment she has a 4.5 per cent interest rate. By switching, she stands to save more than $500 a year.
Other types of loans to compare
RateCity also allows you to compare less common loans, such as low doc loans. A low documentation loan is for borrowers who do not have the traditional record required to secure a loan, like an employment history or clean credit history. As a result, they are treated as higher default risk customers for lenders and often attract a higher interest rate. If you are in this position, it can be helpful to compare the low doc options on the market as there is a significant variance in the rates on offer.
How to find the lowest rates on RateCity.com.au
If your primary interest is finding the lowest interest rates in the home loan market, one of the best ways to do so is by ‘clearing filters’. Your results will no longer be customised, but you will be able to see how low lenders are willing to go to attract your business. Sometimes it can be a good starting point to ascertain how much you pay in extra interest for additional benefits.
In addition to home loans, RateCity lets you compare the following products:
- Personal loans
- Credit cards
- Car loans
- SMSF loans
- Margin loans
- Savings accounts
- Transaction accounts
- Term deposits