Guide: How to pick a home loan

Australian borrowers are spoilt for choice when it comes to lenders and loans, which can make the task of picking one tricky. Sometimes borrowers simply stick with the lender or product they know or their family knows because they think it’s an easier transition from savings account to home loan.

However, if that institution has a high interest rate or high fees, they can end up costing them thousands of dollars in extra repayments over the life of the loan.

Before you pick your loan, it’s worth reviewing the following criteria to make sure you’re getting a good deal.

The interest rate

There is a significant variance in interest rates across the home loan market. At the lower end of the spectrum, borrowers like Mortgage House are charging less than 4 per cent for variable rate loans, while at the higher end, it’s more than 5.5 per cent. All other things being equal, over 30 years, a borrower on the rate of 4 per cent with a $300,000 loan could end up paying around $77,000 than a borrower with a rate of 5.5. per cent, according to RateCity’s mortgage calculator.

The fees

Another way borrowers can end up overpaying is if their lender charges hefty fees. Before taking a loan, it’s worth finding out the upfront costs, the ongoing fees and any charges you may attract for add-on features, such as redraw facilities.

The lender’s customer service

Some lenders have comprehensive customer service offerings, including branches, call centres and web forms, while others don’t. If ease of contact is important to you, it’s worth channelling enquiries through the various customer service portals before you sign on the dotted line to make sure your prospective lender passes the test.

The features

Loan products are designed to win your business and one of the ways they do that is through a suite of offerings. Features like offset accounts can help you reduce your interest, while redraw facilities give you flexibility. Familiarise yourself with the features you would like from a loan and try to find one that ticks the boxes. Just be aware you could end up paying higher fees and a higher rate for some features, so it’s worth weighing up what is more important to you.

The exit

When you conclude your loan, it’s standard to pay a discharge fee, but again, the fees lenders charge at the end of the loan relationship vary greatly. Make sure you’re not overpaying. It’s also worth checking how easy it is to switch to other products if you want more flexibility or find a lower rate.