Catriona Noble demonstrates how to build your own home loan. Picture Rebecca Michael.
BUILDING yourself a home loan to get the best possible deal takes time and care to ensure you save yourself some serious dollars.
By taking a few simple steps when signing your first home loan or refinancing an existing loan, borrowers can be left tens of thousands of dollars better off.
The Reserve Bank of Australia board last week kept the cash rate at two per cent and is expected to keep it there for some time yet.
So while rates are hovering at historical lows we’ve asked the experts how you can piece together a home loan that will help you pay off that roof over your head at a faster pace.
The difference between the lowest and highest variable rate is 2.09 per cent per cent.Source:istock
GETTING HELP
Before you make any decisions about your home loan it’s best to speak to an expert.
Whether you contact your own bank or ask a mortgage broker for help, they will know the tricks of the trade when it comes to crunching the numbers and remodelling a loan to suit you.
Also use financial comparison sites to gauge what other deals are out there.
ANZ’s managing director of retail distribution Australia, Catriona Noble, says customers must talk through the loan features they want with their broker or bank.
“It can appear on the surface cheaper to get a very simple loan but for a lot of people that’s not going to the best solution,’’ she says.
She says some people prefer packaged deals while others may prefer to keep it simple and go for a no-frills deal.
ANZ has seen a huge spike in owner occupiers refinancing their loans — in the December quarter refinances rose by 99 per cent compared to the same quarter two years ago.
This spike has primarily because of the competitive home loan environment or borrowers be refinancing to renovate or release equity.
Catriona Noble says talk through the loan features you want with your broker or bank.Source:News Corp Australia
INTEREST RATES
Research by lender UBank found more than eight of 10 Australians do not know their home loan interest rate.
While this isn’t the sole factor borrowers should be looking at when signing up to a loan it’s one of the biggest costs the customer will bear.
New analysis from financial comparison website RateCity shows, on a standard $300,000 30-year home loan, the difference between the lowest and highest variable rate is 2.09 per cent per cent.
This means those on the highest rate — 5.94 per cent — will pay an additional $87,000 in interest over the loan duration compared to those on the lowest rate of 3.85 per cent.
And the difference between three-year fixed rates is similar — varying from 3.99 per cent to 5.34 per cent.
Noble says fixed rates are “great if you have a long-term view” and want certainty around your mortgage repayments but they are not suitable for everyone.
She also warns, “the break costs of getting out of fixed rate loan can be considerable.”
Sally Tindall says build up as much equity in your loan as possible by choosing a mortgage with an offset account.Source:Supplied
REDRAW/OFFSET
Most borrowers opt for a redraw facility — the ability to draw back money on the loan — or an offset account which minimises a customer’s monthly interest costs.
With a $10,000 balance from day one, assuming the interest rate is five per cent and repaid over 30 years, making monthly repayments customers can save more than $32,000 and shave one year and nine months off a 30-year home loan term.
RateCity spokeswoman Sally Tindall says always make sure you build up as much equity in your loan as possible by choosing a mortgage with an offset account.
“Look for a home loan that offers 100 per cent offset account with no fees attached,’’ she says.
The site’s analysis shows 41 per cent of all home loans have an offset facility and most are commonly associated with variable rate loans.
But beware, some are only partially offset which means the full balance may not be offset against the loan size.
FEES
If you choose carefully RateCity data shows there are almost 2000 products that don’t have any annual fees.
Tindall urges borrowers to double check to make sure no sneaky fees slip through the cracks.
“Home loans are full of hidden fees so before you take one out ask your lender for a complete rundown of the fees you’ll be expected to pay over the life of the loan,’’ she says.
“Knowing they exist upfront will help avoid a nasty surprise later.”
Exit fees were banned in 2012 but break costs still apply to fixed rate loans, so if you already have a fixed rate deal you may need to hold off on refinancing for the time being.
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