The biggest question most people have when it comes to home loans is – What exactly is the best loan?
While brokers specialise in helping you find the right loan, it has become difficult to know who to trust, with some groups recently accusing mortgage brokers of not delivering “the best loans” to their customers.
So let’s take a look at how to determine what the best loan is for you.
First of all, let’s consider how do we define “the best”? The assumption in the media seems to be that the best loan means “the absolute lowest rate available in the market”, which is absolutely incorrect.
These are the factors I suggest you consider when deciding on what the best loan is for you:
Which lender is able to process your application in the required timeframe? This is especially important in time sensitive situations, such as when you need to settle on a property purchase by a certain time. If the lowest rate in the market means that the lender is inundated with applications and as a result you are likely to settle your loan a week or even two weeks late, and incur penalties – is the lowest rate still the best outcome for you? I would argue no, it is not.
Which lender(s) are likely to approve your application? Despite popular belief, not all lenders are the same in this regard. Consider factors such as – are they willing to accept the security you are offering (ie the property in question)? Will they loan you the required amount? How likely are you to pass their credit scoring (especially important if you have made late payments in the past)?
If the lenders offering the lowest rates are unlikely to approve your application for these reasons – then once again, the loan with the lowest rate is not the best loan for you.
Which lenders will give you the service that you want? For example, do you prefer to have branch access? Are you selective about the quality of their internet banking? Do you require easy access to your redraw facility/offset account that doesn’t involve transferring money to another bank account first? Would you like a credit card that accumulates points? Would you like a fixed interest loan with an offset account?
These are just of the few factors to consider when it comes to service. Again, if the lowest rate is going to mean you forego these features and are going to have a headache every time you try to engage with your lender/home loan – is the lowest rate still the best rate for you? Probably not.
#4. Track record
Before you get lured in by a great promotional offer, I suggest you also consider the lender’s track record. Do they have a tendency to bait and switch? In other words, do they have a habit of offering a really attractive interest rate, and then a short time later announcing rate increases? If you are looking for a 100% fixed rate loan, this may not be a concern. However, if any portion of your loan is to be on a variable rate, I strongly suggest you do your due diligence first.
#5. Interest rate and fees.
The last piece of the puzzle is cost. Now that you have narrowed down the list of which lenders fit the bill as to what you are after, then and only then, do you begin to rank your preference of lenders by interest rate.
When doing so, be sure to look at the comparison rate (i.e. factor in all fees and charges as well as the interest rate), not just the interest rate on offer, before making your decision.
So, regardless of whether or not you are using a broker, before you apply for any loan, I strongly suggest you make sure that you do your research and are clear on whether your lender of choice meets the above criteria.
If you would like to learn more about how to better manage your home loan and your money, check out my book Wonder Woman’s Guide to Money.