04 Nov 2021

Potential borrowers are always keen to secure the most cost-effective lending option when looking for a new home loan, being conditioned to believe that they must find the lowest rate no matter what.

Whilst on the surface this may seem quite a sound strategy (after all, don’t we all want to save money?) sometimes when it comes to your home loan, it’s not always the case.

So, when shopping for your next home loan product, bear in mind the following factors when you feel yourself being seduced by a low-rate product.

What are the ongoing fees and charges?

The interest rate alone does not determine the real long-term cost of a home loan. There are not only set up costs but often regular ongoing fees that you may be liable for, the sum of which may deem the product actually not so great after all.

Look out for line items such as monthly account keeping charges, fees to access prepaid funds in the form of redraw and the like. That’s where an experienced mortgage broker comes in. They will will be able to let you know the true cost of the low-rate product by factoring in its charges as against other higher rate options to see which one is indeed the real cheaper option.

Is it a Honeymoon Rate?

Some lenders offer Introductory Rate Home Loans also known as Honeymoon Rate Home loans, targeted often at First Home Buyers. These home loan products come with a very low rate for the first one to two years and then after that it reverts to another product, which usually comes with a markedly higher rate.

In this scenario, lenders will often bank on you not being aware or being indifferent when the low-rate term expires and accept the higher rate when it kicks in. That’s why its imperative to check in with your mortgage broker during this time and see what options are available to maintain a cost-effective loan product that works for you and not the lender.

Do you have access to other benefits?

In general, low-rate loans tend to be “basic” or no-frills options that are literally just that, a home loan. That being said, their rates do tend to be quite tidy and beneficial if that is all you are after.

However, what you don’t normally get with these products are the ability to have access to potential money saving features such as offset accounts and redraw, along with fee waivers for other products such as transactional accounts and credit cards. Not to mention other “rewards” which may come with being on a Home Loan Package Product such as access to reduced insurance premiums and Frequent Flyer Points.

There are mortgage holders who do not want or need any bells and whistles when it comes to their home loan and that is perfectly fine. But for many it makes financial sense to opt to pay a potentially higher interest rate when there are other savings to enjoy.

Is service important to you?

Quite often, you simply get what you pay for.

Particularly in the instance of online lenders, the level of service you can expect to receive will be negligible. There are a fair number of lenders who operate entirely on the digital space requiring the borrower to apply directly through them online.

Whilst their rates can be seductively low, its fair to say that you would want to relinquish any expectation of a superior service experience, if indeed your application does proceed. Sometimes its hard to put a price on relieving yourself of undue stress and anxiety which may be the path you choose when deciding on a digital lender for your next home loan.

An experienced mortgage broker will be able help you weigh up what home loan product will be most suitable for you particularly when it comes to saving money and getting ahead quicker. Don’t fall into the trap of being enticed by a low rate that may end up costing you in the long run.

 

 

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