By Hannah Nicholas
When it comes to home loans, there’s so much for borrowers to know. But choosing the right lender and home loan really can save you thousands of dollars. Here are the 10 must-ask questions every borrower should ask a potential lender.
1. Which home loan will best suit my needs and lifestyle?
The last thing you want is to get stuck with a home loan that doesn’t suit you and your financial situation. Make sure your lender sits down with you and gains an understanding of what exactly you are looking for in a loan.
2. What fees will I have to pay?
First, find out whether or not your loan will be free of monthly account keeping fees. When it comes to home loans, fees can quickly add up. It pays to investigate just what up-front and ongoing charges you will incurr. Consider everything for the entire life of your loan: from application costs and mortgage insurance to monthly, redraw and early-exit fees.
3. Fixed versus variable rate — which is best for me?
Your lender will sit down and discuss your personal financial situation with you and that’s the time to talk about fixed versus variable rates. Everyone’s financial situation is different, so make sure you choose the type of rate that’s right for you. And remember, just because interest rates are falling doesn’t mean that fixed loans are necessarily a bad idea.
4. In what ways can I reduce my interest cost?
No matter the home loan, interest is calculated on a daily balance and charged monthly in arrears. Finding ways to reduce your interest payment will save you money. Ask the lender for tips and advice on ways to do this with the various loans you are choosing from.
Ask about options, such as:
- the ability to make extra repayments and lump sums;
- having your salary paid into your mortgage account;
- professional packages offering discounted interest rates (see below); or
- using a mortgage offset account.
5. What will repayments be if interest rates increase?
As we near the bottom of the market and prices begin to tick slowly up, it’s important to think about the future and what might happen if interest rates continue to rise. Do your research and make a game plan.
Ask your lender to calculate your repayments at a higher interest rate (say 3-4 percent higher) to see if you could cope financially with the increase.
6. Do you offer professional/special product packages?
Those borrowers in the know will often seek out special professional packages that offer an up-front interest rate discount (usually for the life of the loan) provided you meet certain criteria. This could be that you are a high-income earner, employed in certain occupation or organisation or have multiple accounts with the same lender. These packages can also offer lower account fees and discounts on investment and insurance products.
7. Can I make repayments other than monthly?
Simply setting your repayments to fortnightly (or even weekly) rather than monthly can see your mortgage being slashed over time. Make sure this is an option open to you.
8. Can I make unlimited additional repayments without penalty?
Any extra money you throw at your home loan (even an extra $1000 here and there) will see the balance owing go down and hence reduce the amount of interest you will have to pay each month. Not being able to make additional repayments or lump sums could affect your finances in the long term.
9. Fees for switching from a fixed loan to a variable
When it comes to fixing your interest rate, the biggest factor you need to be aware of is the high break costs should you wish to revert to a variable rate. This involves you having to pay for all the “lost” interest to the lender if you had paid the higher rate through to the end of the fixed term. This can add up to a considerable amount of money — think thousands of dollars. It’s best to know all your options up-front.
10. Does this loan include any special features?
In order to make your loan work for you, you need to know the ins and outs of what really is on offer.
Things to enquire about include:
- pause periods (ie, for pregnancy or job loss);
- Internet and phone banking;
- transaction accounts;
- discounted credit cards and insurance packages; and
- portability (the ability to transfer the mortgage to another property).
Remember, asking the right questions up-front can not only save you money now, but also for your long-term property plans. And always have a legal representative go over any loan contract before you sign on the dotted line.