How to compare home loans and choose the right one

Australians have a wider range of lenders to choose from than ever. This can be good news for potential refinancers as it means the competitive market can drive lenders to offer attractive rates and inclusions to entice borrowers. 

On the other hand, the sheer choice of lenders can make it hard for potential borrowers to choose. 

Mortgage brokers 

A mortgage broker can assist with the process of taking out or refinancing a home loan. They act as the go-between with banks and other lenders and must always act in your best interest when suggesting a loan for you. 

A good mortgage broker will work closely with you to understand your property needs and goals, determine what you can afford to borrow, explain home loan terms and find options that suit your needs. They’ll also help you take out the loan, from application all the way through to settlement.

Lenders usually pay the broker a fee or commission when the borrower settles a loan, in which case there will not usually be a cost to the borrower. 

If a mortgage broker is paid commission, they are obliged by law to disclose this information and the amount. 

Banks 

A bank can also assist potential refinancers take out a new home loan.

Refinancing through the same bank with which you have other products, such as an everyday bank account, might also be beneficial. As an incentive to keep your business, a bank may offer discounted interest rates or low establishment and account-keeping fees. Some banks may also waive the upfront fees entirely as an incentive to stay with them.

However, banks can only offer you their own loan products, so you may not get the best available loan, or the lowest rate possible.

At the end of the day, there’s no right or wrong choice. Choosing a broker or lender is an entirely personal decision and can be dependent on many unique factors.

Regardless of whether you choose to refinance with a mortgage broker or go directly to a bank, you should always thoroughly explore your options. This can be done by speaking to different lenders or mortgage brokers about their home loan options, as well as asking family and friends about their lending experiences and reading reviews of different banks and brokers. 

Although you can save money when you refinance, there may be fees involved, so you may have to spend money up-front to take advantage of savings. It’s important to understand and compare the fees and charges between lenders before you switch so you can make sure the benefits outweigh the costs. Fees can vary significantly between lenders, so read the fine print carefully before proceeding.

Break fee - If you currently have a fixed rate loan, you may need to pay a break fee to refinance. This fee may be very high, typically several thousand dollars. Generally, the more interest rates have come down since you took out the fixed rate loan, the higher the break fee will be. 

Discharge (or termination) fee - A fee when you terminate your current loan, typically a few hundred dollars. 

Switching fee - If you decide to refinance with your current lender, you may be charged a switching fee for moving internally, typically a few hundred dollars. 

Application fee - You may be charged an application fee when you refinance, as you’re taking out a new loan. This is typically a few hundred dollars, but it may be worth asking your new lender to waive the application fee to get your business. 

Service and admin fees - You may be charged ongoing fees every month or year when you refinance. This is to cover the lender's costs of servicing and administering the loan. Administration fees vary between lenders and products.

Property valuation fee - Your new lender may require a property valuation to be done before deciding to let you refinance with them. This typically costs a few hundred dollars.

Mortgage registration fee -State governments typically charge borrowers between $120 and $190 to register a new mortgage.

When you refinance, you may have access to new loan features and products. It’s important to understand and compare these features between lenders so you take on a new loan that suits your needs. 

Offset account 

An offset account is an account linked to your mortgage account which can reduce your interest payable. When interest is calculated, any money in the offset account is deducted from the loan balance. The more money you accrue in your offset account, the more it will reduce the interest on your home loan. Being a transaction account, an offset account enables you to access your money when you need it, which can be helpful if you’re working on an ongoing project like renovations. Therefore, it can be beneficial to keep any surplus funds such as savings in your offset account, as reducing your repayments can help you save money faster. 

Redraw facility 

If you’ve paid off more than the minimum repayments on your home loan, a redraw facility will allow you to withdraw any extra money you’ve paid on your loan. This could be beneficial if you need access to funds for large purchases, such as a home renovation or a new car. 

Split loans 

A split loan offers you the ability to have part of your home loan on repayment or interest type, such as a fixed interest rate and part on another repayment or interest type, such as a variable rate.  Splitting your loan can have added benefits, such as using a portion on a variable interest rate product to access an offset account. You can also use split loans to stagger fixed interest rates, such as having a 1 year fixed rate, 3 year fixed and 5 year fixed rate. Ultimately, you should consider what you’re trying to achieve and see which structure suits your circumstances. 

Repayment holiday 

A repayment holiday allows you to pause repayments to your loan, usually for a few months, due to a change in financial circumstances such as a loss of income or inability to work. If you’ve made extra payments towards your home loan, repayments can be automatically drawn from your redraw facility. Alternatively, your lender may extend your loan term by the length of your repayment holiday and keep your repayments the same, or keep the loan term the same and increase the size of your repayments to cover those skipped during the repayment holiday. Although a repayment holiday can increase the interest you pay on the loan, it can also help you manage your cash flow when you most need it. 

Portability (or substitution of security) 

A portability feature on your home loan allows you to keep your home loan when selling by securing the mortgage from your current property to a new one. This feature can help you avoid additional costs, such as discharge and application fees, when you refinance. 

Once you’ve reviewed suitable loans and features, you may be ready to choose a new home loan. 

A mortgage broker can help you compare and select suitable home loan options from a variety of lenders. Each home loan product will also come with a product disclosure statement (PDS) from the lender which can help you make your decision. 

If you’re still unsure about which home loan best suits your needs after shortlisting and considering your top choices, contact the lender for more information or discuss your options with a mortgage broker.