Broaden your search or use a broker and you’ll often find a better deal than your everyday bank.
A lot of people like to stay in their comfort zone when negotiating a home loan. In theory, it makes sense to consider the widest possible range of loan and lender options when we borrow, but studies show many Australians choose a lender purely on the basis that they have an existing relationship with them.
Signing up for a loan with the bank where you do your everyday banking can backfire, however. By choosing a lender on banking history alone, borrowers potentially sell themselves short and may end up forking out more in interest charges and fees.
Greg Hocking Real Estate’s Greg Hocking says it’s easy to be tripped up when negotiating finance if you are not prepared to meticulously research loan options or engage a mortgage broker to do this job.
Hocking sold out of the Hocking Stuart real estate group in 2007. He then spent three years running a mortgage-broking business before setting up his new residential sales operation.
His work in mortgage broking taught him that the risk profile lenders apply to advancing loans for certain apartment buildings and property types can vary greatly. He says Westpac, for example, can refuse to lend for the purchase of a unit in Melbourne’s Eureka Tower if it has already reached an internally-set limit for lending on that building. However, the ANZ or the Commonwealth may advance finance for the same unit if their lending books are open.
Hocking says in other cases one lender will require an applicant to have a high level of equity in a property to approve a loan, but a second lender is prepared to accept a lower level of equity.
”It’s important to shop around,” he says. ”You are not going to glean the market knowledge on loans and rates that you need if you’re time-poor, so think about using a mortgage broker to work it out for you.”
The rise of loan comparison websites, such as RateCity and Mozo, has made the job easier to do yourself but using a mortgage broker is also becoming popular, partly because brokers earn their income from lender commissions. Most don’t charge customers directly.
Belinda Williamson, spokeswoman for national mortgage broker Mortgage Choice, says there’s a vast range of lenders and loan products but many Australians base their choice of lender on an existing relationship.
”This is supported by our most recent first-home-buyer research, which found that 22 per cent of buyers who are looking to purchase their first home before September 2014 will choose their lender on the fact that they currently have their everyday banking with them,” she says.
The problem with keeping all your financial eggs in one basket is that lesser-known lenders, which may not be top of mind for everyday banking needs, frequently offer a superior lending deal.
When settling on a home loan, it’s vital to determine if the lender’s offering is competitive. A mortgage broker can help you compare loans from a wide range of lenders based on interest rate, fees, features, flexibility, and the lenders’ customer service performance. Good brokers will also highlight any rate discounts and special offers in the market.
Estate agents and developers are increasingly working hand-in-hand with mortgage brokers, so it’s wise to interview several brokers before choosing one.
Look for a broker who offers a broad ”panel” of lenders. Investors should also pull out all stops to fully understand their financial, borrowing and taxation position before they start shopping for properties.
”If you don’t structure your finances correctly in the first place, you might be missing out on valuable tax concessions,” Hocking says.