Wouldn’t it be nice if you could just look at a simple table of features and costs and decide which home loan was best for your needs. However we don’t all drive the same cars because we all have different expectations and values – home loans offered by lenders are just the same. What works for one borrower may be a disaster for another and not even the most experienced ‘dinner table expert’ can’t fully understand all of your individual needs and your situation. Good mortgage brokers won’t just answer your questions – they will look for questions and options that you may not have even considered.
Just recently we looked at options for a young couple with 40% deposit looking for their first home. Both applicants had good long term, very secure employment and their income easily serviced the debt – you would think that they could pick and choose from any number of lenders. However two important issues:
- they wanted to go to auction and so required a fully assessed approval in principal ( pre-approval )
- she was pregnant with bub due in 4 months and planned to take a year maternity leave.
Some lender’ pre-approval are worthless as they have not checked any of the supporting documents and so going to auction with an un-assessed pre-approval is very dangerous. Meanwhile due to high volumes some are not accepting applications for pre-approvals added to that the same volume issue means their application processing time has blown out and this means that you simply cannot consider these lenders.
Then we have the maternity leave and the policy on this ranges from flexible to outright rejection – that’s right some lenders don’t accept the wife’s income at all. For others if you are on full pay for say 40 weeks and half pay for 12 weeks they will only use half pay ….as if for the rest of the 30 year loan period you are only on half pay. Even worse if you are as above but have say 4 weeks with unpaid leave then none of your income is acceptable. Once we narrowed down the list of who could provide a timely approval and had reasonable maternity leave provisions we only had two lenders that were suitable.
Is the lowest interest rate the best home loan? – well that all depends
Please don’t confuse the best home loan with the cheapest interest rate. Let’s take an example where one lender offers a 3 year fixed rate of 3.89% when another lender offers 3.99% you might think the the first loan was clearly the best loan however this lender charges 0.25% to lock in the fixed rate (rate lock) when the other offers a free rate lock. So on a $500,000 loan you would save $500 per year with the lower interest rate using first loan and that’s $1,500 over the 3 year fixed period. However the first lender has $800 in establishment costs while second lender is only $200 and that means the lender with the higher interest rate was overall $525 cheaper. We can do the calculations for you including all the hidden fees and charges.
No home loan is ideal for everyone
The investment loan market has been turned on its head by the regulators however we can still offer fixed or variable interest rates around 4% however – these loans aren’t suitable for everyone. We have around 25 different lenders and each one of them has a different policy while basic considerations such as borrowing capacity can vary by tens or hundreds of thousands of dollars between lenders. Don’t forget that a lot of the lowest interest rates often have low LVR ( loan valuation ratio) or very high establishment costs or in some cases are only available for refinance – where as some lenders are currently refusing refinance …. there is no single rule that applies to all lenders.
Interest rates are important but other things also matter
Lender’s argue that their margins are very tight however the reality is we can negotiate discounts with many lenders that would have been unthinkable 2 years ago. It pays to shop around but direct contact with lenders can generate inquiries on your credit file and too many of these become a major cause of rejection, so why not let us do the shopping and keep your credit history nice and clean.
What makes the Best Home Loan
Lenders all have different attitudes as to what makes the ideal customer for their focus. This means that there are niches that can make one lender’s offering significantly more suitable for you, even if it is not the lowest interest rate. A good example is “Medico Policy” where doctors are often exempt from paying LMI up to 90% with the big banks – but some banks will also allow this exemption for suitably qualified accountants, lawyers and engineers. Other examples where your circumstances may or may not suit a lender:
- if you have started a new job some lenders will lend 95% while many will only do 80% with conditions
- likewise if you are on probation most lenders are not interested while a few are happy to do 90% plus
- self employed contractor may have to wait 2 years with some and no wait at all with others
- some lenders insist on genuine saving for first buyers while some don’t really care
- maximum LVR can range from 85% to effectively 99% – ( 95% plus uncapped LMI of 4%)
- not all lenders offer construction loans and some who do, shouldn’t!
- many lenders won’t accept guarantors while many will force the guarantor to refinance their existing loans to them
- many lenders don’t count your overtime or heavily discount it while other won’t accept bonuses
- if you are about to take maternity leave – you might get an unpleasant surprise with some lenders
These are just some of the many policies that can catch you out and result in a failed loan application – which then shows on your credit report and creates even more headaches. The answer is simple, call us to discuss – even if you think you have made your mind up, why not get an independent second opinion, no cost and no obligation.
Home loan interest rates the news just keeps getting better
Several lenders are still offering variable interest rates below 3.90%. However we also have great fixed rates with free interest rate lock and 100% offset accounts making them a serious consideration for many borrowers…. see our page on fixed interest rates where we discuss the pros and cons of a fixed rate home loan..
Often on the surface the best home loan offers you see advertised can lack flexibility for example some restrict you to monthly repayment. Flexibility can be important and for many people there are very important tax benefits from using a 100% offset account these features should never be overlooked. And don’t be fooled by discount claims as there is no single standard variable interest rate any more – it is the bottom line that matters. We offer you an actual dollar cost comparison between products.
Family and friends will be keen to offer advice however beware as the needs of a parent down-sizing their home are entirely different to those of an investor or a first home buyer. There is no single “best home loan” – or one size fits all – and likewise each lender tends to be good at certain types of home loans and maybe not so good with others. Lenders all have variations in their lending policy and quite an enormous variation in the way they calculate your maximum home loan capacity. So you need a home loan tailored to your individual requirements.
At the risk of repeating ourselves – no two borrowers are the same and so we strongly recommend that you let us do our job and professionally assess your requirements and suggest the home loans best suited to your needs from the wide range available from our panel of lenders. Of course no mortgage broker covers the entire market but our panel is a good cross section of large banks, second tier banks, mortgage managers and building societies.