You wouldn’t buy a property without doing your research and having an inspection first, and the same is true of your home loan. Buying a home is arguably the most expensive purchase you’ll ever make, so it pays to do your research.
This is first and foremost to ensure you choose the most competitive home loan for your financial needs, and don’t end up paying more than you have to. Home loan comparison is one of the best ways you can find your ideal home loan that suits your financial situation and budget.
No two homeowners are identical and there is no one-size-fits-all best home loan as there are multiple types of home loans. There are a range of factors that will influence the home loan you are offered, and the cost of that loan. This includes your personal financial situation and credit history, as well as the value and type of property you want to buy.
When it comes to home loan comparison, a lot of people fall into the trap of just looking at the interest rate. There are also several components of a home loan that can influence how much you’ll pay, including:
- The loan amount
- The interest rate
- The loan type (fixed rate, variable rate or split rate loan)
- What type of borrower you are (owner-occupier or investor)
- The features (redraw facility, extra repayments, offset accounts etc.)
- The fees (upfront fees, ongoing fees etc.)
- Packages (linked credit cards and transaction accounts)
- Government assistance (First home buyers may be eligible for stamp duty exemptions and concessions, First Home Owner Grants and more.
You shouldn’t need a law degree to understand the fine print of a home loan and make your choice. This is why it’s essential you take your time and research the right home loan for you, or even seek external help from a mortgage broker, before you sign on the dotted line.
Comparing big banks and smaller lenders
One of the biggest choices you’ll have to make when choosing your home loan is between a big bank or a smaller lender. You may even have planned on just taking out a loan with your childhood bank, usually one of the big four banks (CBA, Westpac, ANZ or NAB).
However, there are benefits and risks in both options and it’s worth weighing them up before you make a decision.
Advantages of a big bank home loan:
- Security and familiarity – one of the main reasons Aussies take out a mortgage with one of the bigger banks is that they offer a greater sense of security. Due to their size and influence, there’s a greater sense that they are “too big to fail” and your bank would go belly up. Plus, if it’s your childhood bank then there’s a familiarity in banking where you know.
- Customer service – Larger financial institutions may be more likely to offer a greater variety of customer service options. Where online lenders and neobanks may be all online-based in how they deal with customers, the bigger institutions can offer branches that allow for face-to-face customer service.
Potential disadvantages of a big bank home loan:
- Higher rates or fees –RateCity research shows that on average, the big banks generally offer higher ongoing home loan rates than smaller lenders. This is because larger institutions may have greater overheads than their competitors, such as having branches, and smaller lenders can pass the savings by not having said overheads to their customers. Plus, to compete in the home loan market, smaller lenders may battle it out with rock-bottom interest rates and wavied fees, whereas big banks may not need to.
- Less innovation – Smaller lenders may also be more likely to offer innovation, particularly with fintech. Online lenders and neobanks may draw in customers through their competitive fintech offerings. Comparatively, bigger banks have greater red tape to navigate when it comes to innovation and therefore may be slower to provide this to customers.
