Finding a way to choose between competing home loan products which may offer special rates and a myriad of additional features can be really difficult.
So to help you make a true comparison and narrow down your choice to terms and features which may better suit your needs, I’ve assembled a list of 10 important questions to ask.
Each question is drawn from a larger list of items that I cover with every client when discussing home loan choices. They will help you to compare loan offers and to consider a home loan’s suitability to your requirements and objectives.
Be aware that some lenders offer “Honeymoon” or discounted intro rates that may only last for a year or two before reverting to a higher rate. Some lenders may even reduce the discount as the loan balance decreases.
When you consider home loan choices, it’s important to identify the total cost of each home loan product over the full life of the loan so that you can compare “apples with apples”.
An offset account can enable you to place your money (salary, savings etc) into an account that is offset against the cost of your loan.
For example, if you have a loan balance of $500,000 and you have $100,000 in your offset account – the interest on your loan will be calculated on $400,000 (your loan balance minus the offset amount).
Many offset accounts have similar features to a regular savings account and may offer you the ability to pay bills, direct debit and even have your mortgage repayments deducted from the account.
A redraw facility will allow you to redraw any extra funds you have paid into your loan over and above the minimum repayments.
There may be occasions when it can be handy to be able to redraw on your loan. Be aware though that some loans may provide a redraw facility but charge a fee for the service.
Loan structure refers to the combination, or type of loan products that you choose for your home finance. For example, if you wish to have access to surplus funds on your home loan, choosing a line of credit facility instead of a loan with offset and/or redraw may cost you more.
It’s important to be clear about your purpose for the intended funds and likely needs (now and in the foreseeable future) so that the best structure for your home finance can be determined. Keep in mind also that the structure you had in place for previous home finance may not be effective for your current or future needs.
Some lenders have strict limits on how much extra you can pay off the fixed portion of your loan, whilst others allow unlimited extra repayments and even redraw.
An annual fee sounds like something to avoid. But keep in mind some lenders may charge an annual fee but offer a higher discount and extra loan features. This can be worthwhile if the savings average out to more than the cost of the annual fee – and the additional loan features are of use to you.
You may still find the same features and a comparable rate in a fee-free loan so it’s worth comparing the total cost of each product.
If you’ll be using an offset account as your transactional account, make sure to ask what network of ATMs the lender will provide free access to. ATM transaction fees can add up!
Some lenders may only have a small network of ATMs that you can use for free whilst others may cover your fee no matter which machine you use.
Many lenders may offer subsidised home and contents insurance, waive credit card fees or even offer free frequent flyer points. Consider what added extras are available for each loan product.
Some lenders may charge various fees for loan maintenance. For example, to split your loan between a combination of fixed and variable rates, or when an interest only period expires.
Some lenders will provide these services for free however others may charge several hundred dollars for each.
Split loans enable you to split your home loan for any purpose. For example you may choose to split a loan between the fixed and variable portions, or to separate the amounts borrowed for an investment property and your owner occupied home.
Split loans provide you with separate statements for each split, which can make managing your accounts much easier. Split loans are often preferred by accountants to simplify accounting for property investments.
Some lenders will allow unlimited splits which can be useful as your investments grow.
What are your thoughts on the above set of questions? Are there other questions you have found that helped to identify important features of home loans or assisted you to make a better comparison between competing home loan products? Feel free to add your comments and any suggestions below or to contact me to discuss your home loan needs.