Home Finance Guide Mortgages & Home Loans

How to Compare Home Loans and Get the Best Deal

When searching for a favorable deal on a home loan (mortgage), the interest rate is crucial. Since a home loan is a commitment over many years, even a slight variation in interest rates accumulates over time.

Home loans present various choices and features. These can provide adaptability or accelerate your loan repayment. However, certain options might incur additional costs, thus it’s essential to assess their value carefully.

StepbyStep Guide to Home Loans

Home Loan Options Explained

Principal and Interest Loans Vs Interest-Only Loans

PRINCIPAL AND INTEREST LOANS

Many home buyers opt for this type of home loan. You make regular payments on the borrowed amount (the principal), in addition to paying interest on that sum. The loan is gradually paid off over a specified period (loan term), such as 25 or 30 years.

INTEREST-ONLY LOANS

During an initial period (e.g., five years), your payments solely cover the interest on the borrowed amount. You're not reducing the principal you borrowed, so your debt remains unchanged. Payments might be lower during the interest-only phase, but they will increase afterward. Ensure you can manage them. Explore interest-only home loans for more details.

Getting the Shortest Loan Term You Can Afford

Your loan term determines the duration for repaying the loan. It influences the amount of your mortgage payments and the total interest you'll pay.

Opting for a shorter loan term (e.g., 20 years) results in higher payments, but you'll pay less interest overall.

On the other hand, choosing a longer loan term (e.g., 30 years) leads to lower payments, but you'll end up paying more interest.

Interest Rates Mortgage Calculator

Choose your loan and repayment types to see the average interest rate for new home loans in February 2024. Interest rates are rising, so the average rate may now be higher.

An interest rate even 0.5% lower could save you thousands of dollars over time.

Fixed Interest Rates Vs Variable Interest Rates

FIXED INTEREST RATE

A fixed interest rate remains constant for a specific duration (e.g., five years). Afterward, the rate may transition to a variable interest rate, or you can negotiate for another fixed rate.

Pros:

  • Facilitates budgeting as you're aware of your repayment amounts.
  • Fewer loan features might result in lower costs.

Cons:

  • You won't benefit if interest rates decrease.
  • Switching loans later could be expensive due to potential break fees.

VARIABLE INTEREST RATE

A variable interest rate can fluctuate in response to changes in the lending market (e.g., when official cash rates change).

Pros:

  • More loan features may provide increased flexibility.
  • It's generally easier to switch loans later if you find a better deal.

Cons:

  • Budgeting becomes challenging as your repayments may vary.
  • Additional loan features could result in higher costs.

PARTIALLY-FIXED RATE

If you're uncertain about whether a fixed or variable interest rate suits you best, consider a combination of both. With a partially-fixed rate (split loan), a portion of your loan has a fixed rate while the rest has a variable rate. You can determine the split ratio (e.g., 50/50 or 20/80).

Mortgage Features Come at a Cost

Home loans with additional options or features may come with a higher price tag. These features could include an offset account, redraw facility, or line of credit. Most of these options allow you to put extra funds into your loan, reducing the amount of interest you pay.

Weigh Up If Features Are Worth It

For instance, let's say you're considering a $500,000 loan with an offset account. If you can maintain a $20,000 balance in the offset, you'll only pay interest on $480,000. However, if your offset balance is consistently low (e.g., under $10,000), the cost of this feature may not be justified.

Avoid Paying More for 'Nice-to-Have' Options

When comparing loans, think about your lifestyle and the features you truly need. Identify what features are essential and what are just 'nice-to-haves'. Is it worthwhile to pay extra for features you might not use? Opting for a basic loan with fewer features could be a smarter choice.

Be Realistic About What You Can Afford!

CREATE A HOME BUYING BUDGET

With mortgage interest rates increasing, it's essential to be realistic about your financial capabilities. Give yourself some breathing room by carefully considering what you can comfortably afford.

Compare Home Loans

Once you've determined the amount you can borrow comfortably, it's advisable to compare loan options from at least two different lenders. Evaluate factors such as loan interest rates, fees, and features to find the most suitable loan for your needs.

While home loan comparison websites can offer helpful insights, it's essential to approach them with caution. Remember that these websites are businesses and may earn revenue through promoted links.

Additionally, they may not provide information on all available options. Be mindful of the limitations when using comparison websites and consider seeking additional sources for comprehensive research.

Compare These Home Loan Features

Features Description
Interest rate (per year) Interest rate advertised by a lender
Comparison rate (per year) A single figure of the cost of the loan — includes the interest rate and most fees
Monthly repayment How much you'll have to pay each month on a loan
Application fee One-off payment when starting a loan, also called establishment, up-front, or set-up fee
Ongoing fees Fees charged every month or year for administering a loan, also called service or administration fees
Loan term Length of time a loan lasts
Loan features Such as offset account, redraw, or line of credit, and their fees (for example, to redraw money)

Are You a First Home Buyer?

FIRST HOME BUYERS GRANT

The Queensland First Home Buyers Grant is a fantastic opportunity for aspiring homeowners to step onto the property ladder. This government initiative provides eligible first-time buyers with a generous grant of $30,000 to put towards purchasing or building a new home.

However, it's important to note that conditions and eligibility criteria do apply. If you meet the requirements, this grant can provide a significant boost to your budget and make your dream of homeownership in Queensland a reality. Take advantage of the 1st Home Owner’s Grant.

Property Brokerage Bunnings Buyer Bonus

Don’t forget to inquire about our $1000 Bunnings Buyer Bonus (t&c’s apply).The path to homeownership becomes more accessible with our New Turnkey Homes.

Consider Using a Mortgage Broker

Given the multitude of lenders in the market, navigating through various loan options can be overwhelming. In such situations, you might find it beneficial to engage the services of a mortgage broker.

These professionals specialise in assisting borrowers like you in finding suitable loan products tailored to your specific needs and financial circumstances.

Our guide on utilising a mortgage broker offers invaluable insights and advice on how to make the most out of this partnership. It provides a comprehensive list of pertinent questions to ask your lender or broker, ensuring that you're equipped with the necessary information to make informed decisions regarding your mortgage.

Finance Guides & Blog Posts for Home Buyers

Discover our collection of blog posts focusing on finance, offering invaluable insights and expert guidance for prospective home buyers. Stay informed about the latest finance news and trends by following our updates.