Getting a home loan in Australia 25 years ago may have seemed straight forward compared to the many choices available today. But was it really that much simpler?
There’s no doubt that the home loan market has changed since Aussie was founded 25 years ago and took on the banks to make lending more accessible for the average Australian.
And today the market continues to evolve; from a rise in the number of lenders and loans available, to a tightening up of lending criteria. But with all these choices, applying for a home loan can feel more complicated than it used to be. So how do you navigate through the choices available to decide on a loan that’s right for you?
1. A growing choice of features
While interest rates may be lower now than they were in the 1990s, today’s home loans offer a range of features and choices that simply didn’t exist 25 years ago.
For starters, you can choose from variable, fixed or split interest rates. And then there are options for flexible repayments, professional packages and portability.
It can seem daunting, but the best place to start is looking at your current situation and considering where you might be in the years ahead. Are you refinancing, investing, self-employed or buying your first home? Is your position likely to be changed by future life events such as getting married, having children or career advancements? When you’ve worked that out, it makes it a little simpler to understand which tailored loan features might work best for you.
Here are a few insights to consider upfront before you narrow down your options:
This usually entails a rate with a range of optional features, including potential discounted interest rates, especially if you’re ‘packaging’ other products from the lender, such as a credit or debit card. This is the most popular style of home loan.
Typically, this type of loan allows you to fix the rate for up to five-years. It can provide a little more certainty if you want to know exactly what your repayments will be down the track. And it could help keep you in control of your budget if rates rise.
2. An abundance of lenders in the market
It’s not just the choice of home loan features that has grown. While lenders were once limited to a small number of banks, now this competitive market has close to 100 home loan providers. And Aussie offers customers more than 2,900 loans from a wide range of providers.
So where do you start? Once again, it’s best to think about your situation and your needs first. Then, it can be easier to match your goals to lenders and the products that they offer.
Don’t necessarily go with the lender your parents or friends have and keep in mind the value of customer service, as well as loan features. Finally, remember that not all lenders that may be worth considering are banks and some may only operate online.
3. Consider your credit rating
25 years ago, perhaps your credit rating didn’t matter quite so much. But a poor credit rating today can mean you end up paying a higher interest rate, or your loan application could even be rejected. “Lending criteria has tightened up dramatically in recent years,” says Mehboob Manji, franchisee of Aussie in Hurstville. “Where, three years ago, lenders would overlook small defaults, today they want a clean credit history,” says Manji.
Before you start shopping around for a home loan, it’s a good idea to get a free credit-check. You can do that with Credit Savvy.
4. Look for an offset account
A popular home loan feature today, offset accounts did not exist 25 years ago. Essentially transaction accounts linked to your home loan, a credit balance can offset your outstanding home loan balance so that you pay less interest and pay off your home loan faster. Do your homework, though: some offset accounts charge a monthly fee or may only be available on home loans with a higher interest rate.
5. How often can you pay?
Paying half your monthly repayments every two weeks allows you to effectively squeeze in an extra repayment each year. That amount comes off the principal of your loan and reduces the interest you pay in the future.
6. Refinancing on the rise
Home loan rates can drift over time and a loan that was competitive when you applied, may not be now. That’s when the option of refinancing your loan with a different lender, or a different loan product with your current lender, can be valuable.
Manji advises considering refinancing two years into your home loan. “You should seriously consider other options on the second anniversary of your loan,” he says. “With the market being as competitive as it is, you should be looking at refinance opportunities as often as you can – as long as the cost can be covered by the lender or the advantage of the differential is greater.”
Getting the loan that’s right for you doesn’t have to be complicated. Ask your Aussie Broker how we can help.