It‘s a question all borrowers ask: How can I get the best possible deal on my home loan? With thousands of loan configurations available from mortgage lenders in Australia, it can be difficult to know which one is the best for you.
The truth is, home loan offers change constantly. When it comes to deals, today’s caviar can quickly become tomorrow’s fish paste. But there are some fundamental rules borrowers can follow to position themselves to take advantage of meaningful discounts.
uno Home Loans was established in 2016 to make transparent the information that has kept buyers in the dark for decades. uno’s chief financial officer and head of home loans, Jason Azzopardi, offers some advice for customers looking for the best deal.
1. Compare rates and features
Thanks to technology, home loan hunters now have access to information that was once tightly held by banks, accountants, mortgage brokers and financial advisors. Loan seekers can choose the features they want, put their financial details into calculators to see what they might pay – and compare the full range of options to decide which best suit their needs. They can apply for and have their loans approved online, and they can do it all on a handheld device.
“At uno, we find a range of owner-occupier and investor loans from major and specialist lenders and allow you to compare rates and features,” says Azzopardi. “Our staff, who are paid by salary not commission, work on your behalf to find the ideal mortgage package every time. uno’s mortgage experts are also available seven days a week to offer advice via phone, email or live chat, and negotiate with mortgage lenders.”
2. Find out your loan-to-value ratio
Financial institutions look at a number of factors to determine the deals they offer customers. The first variable is the loan amount, which is divided into segments – usually “up to $500,000”, “$500,000 to $750,000” and “$750,000 plus”. The larger the loan size, the more bargaining power you have.
The next part of the equation is your loan-to-value ratio (LVR). You’re in a good bargaining position if the amount you’re borrowing is less than 80% of the value of the property you are looking to buy or refinance. So, if you have an LVR of less than 80% and you’re looking to borrow more than $750,000, you’re in a prime position to negotiate the best possible deal.
Another factor is how you plan to make your repayments – either principal and interest (P&I) or interest only (IO). “Loans that are interest only, where borrowers are not required to pay anything off the principal for a predetermined period, sound attractive for those with short-term cash flow issues or investors wanting to claim a tax deduction,” says Azzopardi.
“But uno has developed a calculator that shows how P&I loans with a lower interest rate can actually be a much better option in some circumstances – even for investors, who benefit from income tax deductions on the interest component.”
Tip: If you have a larger home loan or a low LVR, know that you might have more bargaining power to get a highly competitive deal.
3. Learn the truth about refinancing
Banks don’t enjoy losing customers and for this reason their retention tactics are often quite aggressive. They’ll often match a customer’s new offer to persuade them to stay – because moving involves a lot of paperwork and hassle.
“Expect a call from your old bank offering a ‘better’ deal than the one you left for,” says Azzopardi, who adds customers are often their worst enemies in these situations. “They can convince themselves that, because their transaction accounts, credit cards or personal loans are with a particular financial institution, it would be too complicated or expensive to move their mortgage to another lender – even if staying is costing them more money each year.”
Azzopardi says it’s a myth that people must shift all their accounts if they move their mortgage elsewhere and suggests customers test the market by comparing what other lenders are offering.
Tip: Be open to having your transaction accounts with a different lender to your home loan. It could save you thousands a year.
4. Get your financials in order
Those seeking a home loan can push hard for a bargain by ensuring they have a good credit rating. If you only have a 5% deposit, this will need to be “genuine” savings – not dependent on your brother selling his car or a loan from a friend, says Azzopardi. “These are the things that make lenders nervous. If you’re in good financial health, and you can prove it, you’ll be in a much stronger negotiating position.”
The goal is to be more than just “approvable”. Having enough savings to cover a minimum 5% deposit is just the start as you’ll also need to cover stamp duty and legal fees.
Tip: Check your credit rating and, if needed, make changes to improve it before you go deal-hunting.
To download the complete uno eBook, How to Get a Discount on Your Home Loan, click here.
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