How do I get the best home loan interest rate?
Your home loan interest rates can vary based on a number of circumstances.
The different type of loan product.
How large your deposit is.
Your employment history.
Your previous credit history.
The size of your loan.
The area you purchase in.
Interest rate market trends.
The risk to the home loan provider.
Comparing home loan interest rates
To understand home loan interest rates and to negotiate the best interest rate to purchase your new property, it is important to understand:
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Home loan interest rates on offer in the marketplace.
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Home loan features.
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Home loan repayment types and
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Fees that are associated to your home loan product.
Considering that a property purchase is the largest financial decision you will make along with the length of your commitment to pay off your home loan, the smallest difference can make the difference of thousands of dollars over the period of your loan.
Comparing interest rates
A home loan lender is legally obligated to advertise two home loan rates on a home loan product. This is the base home loan interest rate as well as the comparison rate.
The comparison rate is higher than the base rate and is calculated to include all fees and charges in addition to the home loan repayment.
Comparing home loan product features
Home loans can have a variety of features. They include:
The ability to make extra payments
Where you can make additional payments that come off the principal amount of the loan reducing the interest that you pay over time. Generally available on a variable interest rate home loan.
A redraw facility
Where you can redraw any additional payments that you have made on the loan.
Portability
This feature allows you to be able to move your loan to another property without the need to go through another application process.
Offset facility
This allows you to offset the balance of your loan against money in an account against the balance of the loan, which reduces interest and repayments on your home loan.
Line of Credit
This is a form of equity home loan which allows you to borrow against the equity of your home.
What repayment types do home loans have?
There are a range of fees on home loans and the cost of these fees vary between home loan lenders. Some fees may be one off while other fees are reoccurring.
One off home loan fees may include:
Loan establishment fees
These home loan fees are also known as loan application fees or home loan set up costs.
Lenders mortgage insurance (LMI)
This insurance policy is a cost to the borrower that may be paid at the time the loan is established or alternatively may be capitalised into the loan. LMI is generally charged for home loans where the borrower needs a loan above 80% of the purchase price.
Property valuation fees
This is the fee paid by the borrower so that the home loan lender can establish and confirm the value of the property providing security for the home loan.
Legal fees
These are the costs related to the legal documents associated with the home loan facility as well as fees relating to the conveyancing services related to the property purchase.
Stamp duty
A state government tax paid on property purchases that do not meet criteria for stamp duty exemption. The amount charged depends on a number of factors as purchase price, property valuation, location and whether the buyer qualifies for any first home owner grants.
Reoccurring home loan costs include monthly or annual charges such as:
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Interest – interest rates on home loans can be variable, fixed or a combination of the two.
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Administration fees – these are sometimes called service fees or monthly account fees.
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Redraw fees – if you require access to your redraw facility some lenders will charge you a fee every time you access.
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Late payment fees – home loan lenders will generally charge you a fee if you are late on your home loan repayment.
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Early exit fees – if you took out your loan before June 2011, lenders may charge you fee when you pay out the loan, sell the property or refinance before the loan mature date.
What fees are involved in a home loan?
Home loan repayments generally fall into two categories:
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Principal and interest
The most common repayment type are principal and interest. They form part of variable rate home loans and fixed rate home loans. These repayments are designed to pay the interest component of the loan as well as some of the principal loan amount that you originally borrowed. This allows you to pay the loan off over time.
Lenders will also offer borrowers with principal and interest loans flexible repayment terms. They include:
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Tabled repayments – the regular repayment amount stays the same over the life of the loan.
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Straight line repayments – your repayments reduce gradually as the principal component of your loan is reduced.
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Salary credit – your entire salary can be deposited into your home loan and you can withdraw funds from there.
2. Interest only
Interest only home loan repayments involve the borrower only repaying the interest component of the loan for a specified period. This means that the original loan amount does not reduce.
What's the Yellow Line?
Buying a home is likely to be the largest financial decision you will make. There are a vast range of products and banks are extremely competitive. It is best to seek professional financial advise to ensure you obtain the most appropriate home loan product for your needs.
Yellow loans has a vast range of lenders with a range of products to achieve the best results on obtaining the best home loan deal for you. You can contact us here and we can get your future looking bright.