Questions to ask before you sign
Before you sign on the bottom line of any loan contract, you should be really clear on what the loan will cost and what features are included.
Here are some questions to ask your broker or lender before you pick up a pen.
What's the Comparison Rate?
To help borrowers compare different loans and lenders, the government requires all lenders to publish a ‘Comparison Rate’ (also known as the AAPR, or average annual percentage rate) alongside the headline rate on any material promoting home loans.
The comparison rate helps borrowers get a better indication of the cost of a loan over the long term. It’s calculated using a standard formula that takes into account:
- The amount and term of the loan
- The repayment frequency
- The interest rate
- Upfront loan fees plus most ongoing charges
What features do I get?
While the comparison rate can give you a good idea of the true cost of the loan, you should also consider money-saving features that may help you reduce the cost of your loan over the loan term.
Utilising features such as redraw, direct debit, and flexible repayment may make a huge difference to the overall cost and convenience of the loan.
So remember to ask:
- Can I make unlimited extra repayments without penalty?
- Will I get free redraws that I can use at any time? Can I access redraws over the phone or online?
- Can I switch from a variable loan to a fixed or split loan at no extra cost?
- Can I transfer my loan to another property when I move?
- Can I have my salary paid directly into my loan account?
- Can I pay weekly or fortnightly rather than just monthly?
- Do I have the choice of Principal and interest or interest only repayments?
- Do I have the choice of principal and interest or interest-only payments?
What are the fees and charges?
The comparison rate does not cover all the fees and charges associated with a loan.
Potential costs that the comparison rate does not account for includes:
- Government and statutory fees—although these are standard across most lenders and loans.
- Lenders Mortgage Insurance (LMI) or valuation charges.
- Fee waivers or any discounts that your lender might apply to the loan.
- Event based charges, like redraw fees or early repayment fees.
Ask about the costs of all these things and consider how likely it is that you'll use these features.
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