HOME LOANS

Compare Home Loans

The Home Loan could the most important loan in your life. Home loans can last for 20 to 35 years, and for smart borrowers, home loans can also be the most cost-effective loan to use for investments.

There are 3 types of loans are popular in Australia:

• Fixed interest home loan
• Variable interest home loan
• Reverse Mortgage

Fixed Interest Home Loan

Common home loan terms are 1, 3 and 5 years, it is unusual to see fixed interest loans exceeding 5 years, as interest rate cycle tend to change every 5 to 7 years. Fixed interest loans are popular when you believe interest rate is on the way to go up, and you can fix it and not to worry about additional payments from the rate hike.

Variable Interest Home Loans

Variable interest home loans; on another hand, is popular when you believe interest rate is on the way down, hence you can save interest payments in future. There are also a lot of differences in terms of structure and loan flexibility.

Structure of Home Loans

In addition to the interest rate fixture, fix-interest home loans are restricted. In most cases, banks do not allow early repayments, if you make additional payments; you can actually attract penalty interest rates.

Redraw facilities are generally not available from fixed interest home loans. Variables home loans, however, do have redraw facilities available, but often you have to make a special request for it.

Redraw Facility provides Flexibility

The flexibility of redraw facility is an important factor why borrowers would rather pay even additional interest on their loans for this facility. This means you can redraw them and use the home loan for renovations, for investments even for leisure activities.

Interest rates on home loans are significantly lower than personal loans, which is why it is the most cost-effective loan to fund your other activities.

The advantage on variable interest loans is you can make repayments as you wish; hence reducing the interest.

Smart ways to manage your home loan

If managed properly, home loans can be an excellent wealth management tool. Smart people have been using their home loans as a line-of-credit. This means, deposit your cashflows into your variable home loan account, such as salary, dividends, investment incomes all into your variable home loan account.

This effectively saves a lot of interest payments on your home loan. At the end of each month, you then redraw funds from your home loans to pay off expenses on credit cards and others.

This will effective save a lot of interests on your home loans along the way.

Other effective ways to manage your home loans is simply by adding repayment times. Typically, this is on the monthly cycle, but you can choose to pay your home loan on fortnightly basis, by doing so, you actually make additional 4 payments (extra one month) of repayment a year, hence reducing the home loan amount.

When in doubt; you can also split your home loans, you can split your loan into fixed and variables home loans, and concentrate to pay off the variable home loan first.

Choices of Home Loans

Majority of the home loans are still provided by the nation’s top banks. Other home loan providers include credit unions, building societies and second tier banks. Other financial institutions have been providing home loan products, but this has been scaled back in 2008 due to the credit crunch.

Foreign banks now also have increasing their home loan market share, led by ING, HSBC, Citigroup. Many of these products have been sold through mortgage brokers, but increasingly, they are also be sold through Internet platforms.

There is a growing number of consumers, especially Generation Y consumers buying home loans online, many banks also have online home loan products which compete with their other home loan products.

Online Home Loan accounts sometimes can provide more competitive interest rates, and application process is also quite straight-forward.

Mortgage brokers can sometimes access to good products, such as home loans from New Zealand or overseas banks, but these products have been impacted by credit crunch, and they are in fact, losing their market share in Australia.

When applying a home loan with mortgage brokers, it is important you also compare the home loan products from those offered by the same lender / bank to see the differences. One of the savings consumers can usually achieve through brokers is to waive the application fee for the home loan, but sometimes this means other conditions will be imposed.

Home Loan accounts usually come with Internet banking facility as well, this provides easy way for payment management, and if you are using the same bank, you can also cross-link with your other bank accounts.

Home Loans are negotiable

It is important to know that home loans are negotiable, and you can save a lot of interest or fees by negotiating better deals for your home loans.

To negotiate a better term for your home loan, you can do the following:

• If your home loan amount is above $250,000 you should be qualified for a better interest rate
• If you have multiple banking with the same bank, you can waive the home loan application fees
• If you have other loans, you can consolidate them into your home loan, to lower your monthly repayments
• If you source your home loan through mortgage brokers or financial planner, they can often get better home loan rates for you

Most importantly, do shop around especially if you are applying for a home loan for the very first time. If you are switching to another home loan, please ensure you understand the penalties and additional charges that may incur, this may add up more than the interest you can save.