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How to choose the best bank for your home loan

Metricon

Just like dipping your toes into the dating pool, figuring out which bank is the best fit for you can be daunting, especially for first-time buyers. There are so many options to choose from, whether you look at the various offerings from the big four – ANZ, NAB, Commonwealth Bank, Westpac – or investigate the likes of credit unions and smaller local banks. Even a basic Google search can send your head spinning with information overload.

To give you a helping hand, we’ve compiled an easy step-by-step guide to finding your perfect bank loan match. Before diving in, it should be noted that getting independent financial advice is worth its weight in gold before you leap into any arrangement. And it's great to know that Metricon has proudly partnered with three finance specialists to take the complexity out of the process: Mortgage Domayne in Victoria, Mortgage Advice Bureau in New South Wales & Queensland, and Aussie in South Australia.

Chat with the experts

Our number one tip is engaging a mortgage broker to do most of the hard yards. Metricon's financial partners Mortgage Domayne, Mortgage Advice Bureau, and Aussie are specialists who serve as your personal guides through the complex world of mortgages, offering invaluable assistance at every step of the process.

One of the primary advantages is access to a wide array of loan options. Mortgage brokers work with multiple lenders, allowing them to present you with a diverse range of loan products tailored to your unique financial situation. Moreover, they can help you navigate the intricacies of mortgage rates and terms, ensuring you secure the most favorable deal. Beyond that, brokers can assist with streamlining the application process, helping you gather the necessary documents and submit a polished application that increases your chances of approval.

Should you choose to manage your own home finances, it's essential to delve into the critical aspects you'll need to grasp and navigate. Here's a breakdown of what you should consider:

Show interest

Probably the most important thing to be across before you make a move on a bank loan is what the interest rates are like. Just like committing to a long-term relationship, the plan is you’re going to be with this bank for quite some time. And that means that even minor variations in the interest rate paid can add up to massive differences over the duration of your mortgage. Seriously, even half a percentage point difference can save you thousands of hard-earned dollars.

So it pays to take time to compare what interest rate each financial institution is offering, as well as what type of loans they’re offering.

Principal and interest loans have fixed terms (usually 25-30 years) where you make a set payment against the total loan owing every month, accruing interest on the amount remaining.

Interest-only loans mean you’re only paying the interest amount for a set period of time. So you won’t actually make a dent in the total owed, and after the agreed period, your payments will go up considerably to start paying the loan down.

Whichever option you choose, it's worth noting that we are currently in a period where the Reserve Bank of Australia has been regularly increasing interest rates. So, it makes sense to look at loans that don’t push you to the top end of your payment capabilities, leaving enough wiggle room to factor this in.

Fixed or not?

Though they’re less common at the moment because of the national volatility of interest rates, it is still possible to agree on a fixed interest rate with some lending institutions. That means you’ll agree on a set interest rate repayment for a fixed period, usually around five years. That can be great in a time like now when interest rates keep rising, because you’ll be cushioned from hikes and know what you will be paying every month for the duration of that time (you’ll have to renegotiate near the end of the agreement).

The possible downside to choosing a fixed-rate loan over the standard variable one is that you’ll miss out on possible savings if the general trend of interest rate hikes reverses and your bank passes those savings onto customers.

As with all these tips, it’s worth having a conversation with a financial adviser about what might work best for you as you loan shop.

Shorter term is long term

The smartest way to approach a big home loan, like any debt, is to pay it off as fast as you reasonably can. The longer the loan term, the more you will potentially wind up paying when interest accrues every month. So think ahead and try to maximise your savings to choose a shorter loan term, because in the long run, you’ll save money.

Again, it’s worth noting that this will mean larger monthly payments, so ensure you’re not pushed to your limit and can afford to factor in any interest rate hikes.

Read the small print

Just like checking prospective partners for any red flags hidden behind the Instagram-ready profile pics, you need to be across all the detail of any home loan offer you consider, because there are often a bunch of less obvious costs involved.

Here's where having a mortgage broker in your corner can be a game-changer. They can help you dissect the fine print and understand the nuances of various loan options.

Is there a one-off application/up-front/establishment fee when you opt to go with the lender, and if so, how much? Many loans require a one-off annual fee over and above your monthly repayments. You’ll have to factor this into your end-of-financial-year budget. Some loans might alternatively require a smaller monthly fee to secure them, usually called an administration fee.

You may also be up for an exit fee if you switch lenders at any stage, or if you opt to redraw some of the money you’ve paid down on a mortgage. Even the ability to redraw can come with an extra monthly fee.

The same goes for optional bolt-ons like the ability to make additional payments on top of your monthly agreement or take a temporary repayment holiday. These can seem like good deals, but they may come with monthly or annual fees that can make a big difference to your bottom line, so do your homework.

This is why it pays to sit down, read up, get advice and make an informed decision with a big-picture view when you opt for a home loan.

Contact us today for a consultation with one of our finance specialists to see what you can comfortably afford and understand what you need to do to get on your way.