It's not just about interest

Posted by: Greg Scott on 26 May 2007

There’s a lot more to think about when arranging your home loan than what interest rate you will be charged. Whilst the interest rate is very important there are many other factors that should also be taken into consideration when making your home loan decision. Such things as:

• Interest rate expectations for the near future. For example, it may be ill advised to take a long-term fixed rate which is attractive today but may well be uncompetitive and expensive in a year or so.
• Is the interest rate offered ‘locked in’ (guaranteed) right through to settlement? The period of time that an interest rate can be locked in for prior to settlement varies from lender to lender with some lenders charging a fee for this service. Therefore, even though a lender may offer a very attractive interest rate at the time of applying for a home loan, this may be of little value to you if it could change prior to settlement.
• Another extremely important issue in determining how much interest you pay is the structure and terms of the loan and the flexibility (or lack of) that it provides. By structuring your loan correctly for your individual circumstances you may save thousands of dollars in interest and ensure that you don’t face unexpected costs in the future. An experienced mortgage broker will ensure that you get this right.
• Also, interest is not the only cost associated with arranging a home loan. There are many other potential costs and it would be unwise to focus solely on the interest rate as the lender with the cheapest interest rate may well be the most expensive overall when other costs are taken into consideration. Some such costs include: loan application fees, registered valuation fees, solicitors fees, lenders mortgage insurance costs, and bank fees. Once again an experienced mortgage broker will be able to help in this area by showing you the difference in these fees between the various lenders and advising which of these fees apply to you (i.e. some lenders may not require a valuation) and then negotiating these fees on your behalf.

So rather than focusing solely on the interest rate make sure you consider the points raised in this article and base your final decision on the overall benefits of the home loan package you are being offered.


- By Greg Scott, Director and Mortgage Broker, The Home Loan Shop. If you have a question for Greg, please contact Inform.