7 questions to ask when choosing a home loan

Whether you’re a first home buyer, long-term property investor or just looking to refinance, there’s a lot to think about when choosing a home loan.

Most borrowers want to keep repayments low, and many also search for helpful features to aid them in paying down their debt. But did you know the size of your deposit or equity in your home may influence the loan you’re offered?

Here are 7 questions to ask when choosing a home loan.

 

1. What is the interest rate?

When searching for a home loan, one of the most important questions to ask is what is the interest rate being offered, and is it competitive? The interest rate of a home loan is a significant influence on the ongoing cost of your mortgage. The lower your interest rate, the lower your ongoing mortgage repayments and amount of interest paid over the life of the loan.

Reduce Home Loans is a leading low rate lender in Australia and consistently breaks records by offering some of the most competitive rates on the market. If you’re aiming to keep costs low, consider if a Reduce Home Loan may be right for you.

 

2. Should I get a fixed rate or a variable rate?

A valuable question to ask yourself when choosing a home loan is whether to pick a fixed rate loan or a variable rate loan. There are benefits and disadvantages to both types, with fixed rate loans offering a level of stability in your budget by locking in your interest rate for a fixed term. This protects you from potential market fluctuations and interest rate hikes.

It pays to reassess your finances

However, you will miss out on interest rate decreases, which is where variable home loans come in. If the Reserve Bank of Australia cut the cash rate and your lender passed on the cut to you, your variable interest will decrease, meaning your mortgage repayments will too. Generally speaking, lenders do offer access to more features for variable rate loan customers.

If the answer to this question is that you cannot choose, consider a split rate loan. Reduce Home Loans allows customers to split a portion of their loan between variable interest and fixed interest. This handy feature allows borrowers to have the best of both worlds.

 

3. What fees may be charged?

It’s not just the interest you need to inquire about, but the potential fees charged too. If a home loan offers a rock-bottom rate but eye-watering ongoing fees, you may find yourself paying more over the life of the loan than if you picked a higher-rate option.

If you’re refinancing, you may face discharge fees, or break fees if leaving a fixed rate loan early. For a new mortgage, you may also face a range of costly fees, such as application fees, establishment fees, third party valuation fees, third party legal fees, monthly fees, annual fees and settlement fees.

This is where a comparison rate may come in handy. A comparison rate may help indicate the true cost of a loan, as it factors in not just the interest rate but fees and charges as well. Based on a $150,000 loan amount over a 25-year term. As house prices have climbed steadily over the years, this loan amount may not be the most relatable for some Australians. However, it does give you a good starting point for gauging the real ongoing cost of a home loan.

Some lenders, like Reduce Home Loans, will waive some, if not most, of the ongoing fees for new customers. Take a look through the product disclosure statement for a full breakdown of any potential fees.

 

4. Are there any features?

It’s not just the cost of a home loan you want to look into, but what helpful features and tools the lender can offer you as well. Loans with more features may come at a greater cost to the borrower through annual fees and higher interest rates. But the features may be worth the cost if they help you to pay down your mortgage faster.

When choosing a home loan, ensure you ask whether the lender offers split rates, an offset account, extra repayments at no charge or a redraw facility. One or more of these features may be able to help you unlock your home loan’s full potential.

 

5. What type of repayments can I make?

The most common type of mortgage repayments offered are monthly repayments, however some lenders do allow borrowers to make weekly or fortnightly repayments. In fact, this may allow you to pay down your mortgage faster by making more frequent repayments. While searching for your next home loan, don’t forget to ask the lender what repayment types are available.

 

6. What LVR is required?

It’s no secret that lenders are more likely to approve reliable borrowers with higher deposits for a home loan. Having a home loan deposit under 20 per cent may still get you over the line, but you also may be offered a higher interest rate, as a bigger deposit shows a greater level of financial discipline.

The theory being, the more savings you have, the greater chance you have of paying off your home loan. Plus, you’ll need to pay costly lenders mortgage insurance if your deposit is under 20 per cent.

When looking for your next home loan ensure you ask what is the loan-to-value ratio (LVR) required for the lender’s most competitive interest rates. This is a measurement of the amount you are borrowing versus the property value.

For example, if the property value is $500,000 and your home loan is $400,000, you’ve borrowed 80 per cent of the property’s value. Meaning, your LVR will be 80 per cent. Whether you’ve built up some equity in your current home loan or have saved up a 20+ per cent deposit, ask the lender about their LVR requirements.

 

7. What deals are on offer?

Don’t forget to ask what is in it for you when searching for a home loan. Lenders will often offer borrowers enticing home loan deals to get them on to their books. These may include:

  • Cash back offers
  • Discounted interest rates
  • Waived fees
  • Waived LMI

If you’re a reliable borrower with a good credit score and a large deposit, or equity built up in your home, you may be able to qualify for one of these competitive home loan offers. These offers may also help first-time or refinancing customers pay for the upfront costs of a home loan.

 

Reduce Home Loans has some of the most competitive cash back home loan deals in the market, with offers available from $1,000 up to $10,000. Find out if you’re eligible for a specially tailored cash back loan today.

 

Any statement/s are general in nature and do not take into account your financial personal situation, objectives or needs. You should consider whether any statement/s is suitable for you and your personal circumstances. Before making any financial decision, consider your circumstances and the product disclosure statement.

(29)    For the Rate Cutter Variable where the borrower pays $1170 upfront fees then a corresponding loyalty discount of 0.10% p.a. off the Rate Cutter Variable (at that time)  will automatically apply after the 5th anniversary of the loan.  These fees and loyalty discount are factored into the comparison rate.  The loan setup fees are not refundable.

(27)    For the Investor Rate Slasher Cash Back Variable where the borrower pays $0 upfront fees then a corresponding loyalty discount of 0.06% p.a. off the Investor Rate Slasher Cash Back Variable (at that time)  will automatically apply after the 5th anniversary of the loan.  These fees and loyalty discount are factored into the comparison rate.  The loan setup fees are not refundable.

(26)    For the Low Rider Cash Back Variable where the borrower pays $0 upfront fees then a corresponding loyalty discount of 0.06% p.a. off the Low Rider Cash Back Variable (at that time)  will automatically apply after the 5th anniversary of the loan.  These fees and loyalty discount are factored into the comparison rate.  The loan setup fees are not refundable.

(25)    For the Economizer Cash Back Variable where the borrower pays an upfront fee of $697 then a corresponding loyalty discount of 0.08% p.a. off the Economizer Cash Back Variable (at that time)  will automatically apply after the 5th anniversary of the loan.  These fees and loyalty discount are factored into the comparison rate.  The loan setup fees are not refundable.

(24)    For the Super Saver Cash Back Variable where the borrower pays an upfront fee of $697 then a corresponding loyalty discount of 0.10% p.a. off the Super Saver Cash Back Variable (at that time)  will automatically apply after the 5th anniversary of the loan.  These fees and loyalty discount are factored into the comparison rate.  The loan setup fees are not refundable.

(23)    For the Super Saver Variable where the borrower pays an upfront fee of $1170 then a corresponding loyalty discount of 0.15% p.a. off the Super Saver Variable (at that time)  will automatically apply after the 5th anniversary of the loan.  These fees and loyalty discount are factored into the comparison rate.  The loan setup fees are not refundable.

(22)    For the Economizer Variable where the borrower pays an upfront fee of $1,170 then a corresponding loyalty discount of 0.11% p.a. off the Economizer Variable (at that time)  will automatically apply after the 5th anniversary of the loan.  These fees and loyalty discount are factored into the comparison rate.  The loan setup fees are not refundable.

(21)    For the Investor Cash Back Hero Variable where the borrower pays an upfront fee of $697 then a corresponding loyalty discount of 0.08% p.a. off the Cash Back Hero Variable (at that time)  will automatically apply after the 5th anniversary of the loan.  These fees and loyalty discount are factored into the comparison rate.  The loan setup fees are not refundable.

(18)    For the Home Owners Dream 1 year fixed where the borrower pays an upfront fee of $697 then a corresponding loyalty discount of 0.20% p.a. off the Home Owners Dream reverted variable rate (at that time)  will automatically apply after the 5th anniversary of the loan.  These fees and loyalty discount are factored into the comparison rate.  The loan setup fees are not refundable.

(20)    For the Cash Back Hero Variable where the borrower pays an upfront fee of $697 then a corresponding loyalty discount of 0.08% p.a. off the Cash Back Hero Variable (at that time)  will automatically apply after the 5th anniversary of the loan.  These fees and loyalty discount are factored into the comparison rate.  The loan setup fees are not refundable.

(14)   For the Investor Rate Slasher where the borrower pays an upfront fee of $1,170 then a corresponding loyalty discount of 0.09% p.a. off the Investor Rate Slasher rate (at that time)  will automatically apply after the 5th anniversary of the loan.  These fees and loyalty discount are factored into the comparison rate.  The loan setup fees are not refundable.

(12)   For the Investor Rate Lovers Interest Only where the borrower pays an upfront fee of $697 then a corresponding loyalty discount of 0.07% p.a. off the Investor Rate Lovers Interest Only rate (at that time)  will automatically apply after the 5th anniversary of the loan.  These fees and loyalty discount are factored into the comparison rate.  The loan setup fees are not refundable.

(11)   For the Wealth Maximizer 3 year fixed Principal & Interest where the borrower pays an upfront fee of $697 then a corresponding loyalty discount of 0.20% p.a. off the Wealth Maximizer reverted variable rate (at that time)  will automatically apply after the 5th anniversary of the loan.  These fees and loyalty discount are factored into the comparison rate.  The loan setup fees are not refundable.

(10)    For the Wealth Maximizer 2 year fixed where the borrower pays an upfront fee of $697 then a corresponding loyalty discount of 0.20% p.a. off the Wealth Maximizer reverted variable rate (at that time)  will automatically apply after the 5th anniversary of the loan.  These fees and loyalty discount are factored into the comparison rate.  The loan setup fees are not refundable.

(9)    For the Home Owners Dream 3 year fixed where the borrower pays an upfront fee of $697 then a corresponding loyalty discount of 0.20% p.a. off the Home Owners Dream reverted variable rate (at that time)  will automatically apply after the 5th anniversary of the loan.  These fees and loyalty discount are factored into the comparison rate.  The loan setup fees are not refundable.

(8)    For the Home Owners Dream 2 year fixed where the borrower pays an upfront fee of $697 then a corresponding loyalty discount of 0.20% p.a. off the Home Owners Dream reverted variable rate (at that time)  will automatically apply after the 5th anniversary of the loan.  These fees and loyalty discount are factored into the comparison rate.  The loan setup fees are not refundable.

(7)    For the Investor Rate Slasher where the borrower pays an upfront fee of $1,170 then a corresponding loyalty discount of 0.09% p.a. off the Investor Rate Slasher rate (at that time)  will automatically apply after the 5th anniversary of the loan.  These fees and loyalty discount are factored into the comparison rate.  The loan setup fees are not refundable.

(6)    For the Investor Rate Buster Variable where the borrower pays an upfront fee of $697 then a corresponding loyalty discount of 0.08% p.a. off the Investor Rate Buster Variable rate (at that time)  will automatically apply after the 5th anniversary of the loan.  These fees and loyalty discount are factored into the comparison rate.  The loan setup fees are not refundable.

(5)    For the Rate Buster Variable where the borrower pays an upfront fee of $150 then a corresponding loyalty discount of 0.05% p.a. off the Rate Buster Variable rate (at that time)  will automatically apply after the 5th anniversary of the loan.  These fees and loyalty discount are factored into the comparison rate.  The loan setup fees are not refundable.

(4)For the Rate Slasher Variable where the borrower pays an upfront fee of $1,170 then a corresponding loyalty discount of 0.08% p.a. off the Rate Slasher Variable rate (at that time) will automatically apply after the 5th anniversary of the loan. These fees and loyalty discount are factored into the comparison rate. The loan setup fees are not refundable.

(3) For the Investor Rate Lovers Variable where the borrower pays $0 upfront fees then a corresponding loyalty discount of 0.06% p.a. off the Investor Rate Lovers Variable rate (at that time) will automatically apply after the 5th anniversary of the loan. These fees and loyalty discount are factored into the comparison rate.  The loan setup fees are not refundable.

(2)For the Rate Lovers Variable where the borrower pays $0 upfront fees then a corresponding loyalty discount of 0.06% p.a. off the Rate Lovers Variable rate (at that time)  will automatically apply after the 5th anniversary of the loan.  These fees and loyalty discount are factored into the comparison rate.  The loan setup fees are not refundable.

(1) For the Low Rider Variable where the borrower pays $0 upfront fees then a corresponding loyalty discount of 0.06% p.a. off the Low Rider Variable rate (at that time) will automatically apply after the 5th anniversary of the loan. These fees and loyalty discount are factored into the comparison rate. The loan setup fees are not refundable.

(28) For the Rate Crusher 1 Year Fixed where the borrower pays an upfront fee of $697 then a corresponding loyalty discount of 0.05% p.a. off the Rate Crusher reverted variable rate (at that time) will automatically apply after the 5th anniversary of the loan. These fees and loyalty discount are factored into the comparison rate. The loan setup fees are not refundable.

(19) For the 1 Year Fixed Wealth Maximizer where the borrower pays an upfront fee of $697 then a corresponding loyalty discount of 0.20% p.a. off the 1 Year Fixed Wealth Maximizer reverted variable rate (at that time) will automatically apply after the 5th anniversary of the loan. These fees and loyalty discount are factored into the comparison rate. The loan setup fees are not refundable.