How to compare home loan options

Finding the right home loan can be a stressful process.  It takes time to contact a number of lenders to find out their rates and conditions and try to determine what is best for you.

We work closely with our clients to compare over 35 lenders and ensure we find the best option to help them achieve their goals.

Whether you search for your own home loan or, like 70% of Australians, utilise the services of a mortgage broker, it is still important to understand how to compare home loans to ensure you’re signing up to the loan that’s right for you. 

Given the nature of home loans, the sheer volume of products and lenders, comparing apples with apples is very difficult. Here are some key areas to analyse and compare:

1. Comparison rates

You will see a comparison rate published with each interest rate you see advertised. This is a legal requirement for lenders and it helps you compare loans against each other. It is designed to prevent

lenders advertising very low interest rates to attract new customers but then charging excessive fees on the account in an e􀇛ort to hide the true costs. A comparison rate includes the interest rate and

any fees and charges you can expect to pay, e.g. application fees, or yearly or monthly fees. The comparison rate is calculated on a $150,000 and 25 year loan, which will be different to the home loan you choose.

2. Total interest costs

When you review your proposed home loan, you can see the total cost of interest over the life of your loan. It will illustrate how much you will pay in interest at the current interest rate (which could

change many times during the life of the loan). This will show you the impact of even the smallest difference in interest rates, which could add up to many thousands of dollars.

3. Estimated cost at year 5

This shows you how much the loan will cost a􀇝er 5 years, including fees and interest. This is often the best guide as to which loan is the most cost effective for you as at 5 years you will most probably review your loan and lender to see if it is the still the most suitable (If I am your broker, I will conduct these reviews more regularly on your behalf to ensure you have the best loan for your circumstances).

4. Projected balance at year 5

This figure will tell you how much of your loan will remain after 5 years. It is a good guide to see the impact of the fees and interest rates are having on your ability to pay down your loan quickly. Furthermore, if you have factored in any ongoing offset balance or additional repayments, you can see the impact this is making to your balance.

5. Total fees

Having a look at how much you will pay in fees will also give you a good guide as to the price you are

paying for your loan. Your fees will vary based on the type of loan you are looking for. Lenders will o􀇛er a range of products, from basic ‘no frills’ fee free loans to packaged loans with yearly or monthly fees.

6. The total cost of the loan

This is the total the loan will cost over its life. It will include all fees and the total interest costs. It is a snap shot at the time you apply as the interest rate you pay will change and the fees could fluctuate as well depending if the lender will raise or lower them, or even change the product all together.

I can help guide you through this process by providing comparisons between suitable products for you side-by-side and walk you through the differences, pros and cons of each loan. After reviewing your options with me, you will feel more empowered when making your decision.

If you want to get started with your pre-approval, you can complete our 5 minute form here: https://bit.ly/43VqyrH
Call on: 0418 552 938
Email at: peter.jefferson@mortgagechoice.com.au, or
Book a time to chat: https://bit.ly/43WsXma

If you’re a first home buyer, I’ve also created a useful guide to help you understand other key aspects of buying your first home.