When it comes to getting the best deal from a bank on a home loan, customers have never had it so good. Not only are interest rate lower than at any time in the past two years but consumers can window shop online and find the best deal at their computer. There are many, many websites that offer comparisons between the banks and many banks too are making almost unbelievably low offers of their home loans. But as we all know sometimes the cheapest so not the best. So what do banks offer in their home loan packages and what should a borrower watch out for?
Most importantly understand the interest rate. In the bank vernacular, the best way to understand interest rates on home loans is to look at first the ‘headline’ interest rate, that s the rate offered by the bank on its standard variable home loan. This is the rate offered on the basis that bank can change interest rates as they see fit. The standard variable rate loan is the most common type of home loan. The interest rate s subject to change, depending on the official rates set by the Reserve Bank rate and the prevailing market conditions. If the rate is increased, so do the amount of your regular loan repayments. If the rate falls, your repayments will be accordingly reduced. You the borrower have no choice but to say what the bank’s going rate is on a standard variable mortgage. So when comparing one bank to another it is important to compare ‘apples with apples” so that one bank’s fixed rate (that s where the rate is fixed and not altered for a pre determined period such as three or five year) and another banks’ variable inertest rate.
If you have borrowed money before and have a good credit record banks will tend be more amenable to doing deals. In practice, when the property market is ‘soft’ that is, where the numbers of new loans have been declining, then competition between banks tends to increase. After all, banks are in the business of lending and will compete aggressively when conditions are soft. Mid year 2012 is such a time and we are finding that banks very willing to do deals when otherwise they may not have been so easy to deal with. If you have a good income and have borrowed before you will almost certainly be able to shave a few points off a home loan simply by asking. For example an advertised rate of 6.25% on a standard variable home loan may end up being secured at 5.95 percent after some negotiation. Although it seems incongruous banks can be negotiated with!
You need to understand bank fees. Although it is against the law to have ‘hidden’ fees there will always be fees that you need to ask about or research on one of the comparison site mentioned earlier or on the bank website. Fees can range from $600 for an application fee to just a few dollars for a printed monthly statement. The fees will be disclosed by the bank but the borrower should add these in when comparing one loan against anther.
You need to understand the flexibility you need. For example some banks will have a ‘no frills’ mortgage which on paper may appear to be the best loan for you to go for but it may not have the flexibility you need. Flexibility means different things for different people but in essence it means having the flexibility to, for example, add to or change your monthly repayments and to have what is known as a ‘redraw’ account which allows you to take back money paid on your loan which was over an above the standard month repayments.
In short, banks will muscle each other to win your business. They will offer all sorts of incentives and offers; and it is incumbent on you the borrower to reduce all this down to the main three criteria: the interest rate you will be paying; the fees you will be paying and the flexibility and features of the mortgage. As a bonus it might be nice to actually have a name of a personal banker to deal with: much better than a customer service person in a call centre.