Crunch before you commit, why rewards could lose you money

Crunch before you commit - why rewards may lose you money

Competition in the home loan market continues to run hot, especially now the spring deals are in.  If you’re looking for evidence, it’s hard to go past the recent blast of introductory offers of frequent flyer points and cold hard cash to lure you in.

Most recently, NAB has stolen the limelight, offering of a whopping 250,000 frequent flyer points for new owner occupier home loans of $250,000 or more, when used in conjunction with a NAB credit card and transaction account.

“It’s a very competitive market,” NAB general manager of consumer lending, Angus Gilfillan told the Sydney Morning Herald. “I think customers will value this more than a cash-back.”

And while a two-week jaunt around Europe or the States sounds mighty appealing, are these types of deals worth it, after you’ve packed your bags away in your new cupboard in your new home?

The answer is, probably not.

A quick RateCity comparison reveals that the lowest NAB loan, which is competitively priced at 4.15%, will cost $8,688 more than UBank’s lowest rate of 3.99%, on a $250,000 loan over 30 years. And while 250,000 points will take you to London and back twice, the cash equivalent is less than $4,000 when you factor in taxes.

“Try not to get caught up in the hype” says RateCity’s Banking Analyst Peter Arnold.  “If it looks too good to be true, then chances are, it probably is.

“Frequent flyer points and cash back gimmicks are great if they’re part of a product you’ve already selected on its merits, but if that’s what’s leading your decision-making then its time to take a step back and crunch the numbers.”

Interestingly, most of the big offers are for owner-occupiers, as part of the push by the major banks to limit the increase in investor loans to 10 per cent while keeping their overall loan book growing. “One of the unintended consequences is you can probably get an even better deal as an owner-occupier than you could before,” APRA chairman Wayne Byres told the SMH.

What all this means is that now is a great time to refinance if you’re an owner-occupier, but you might be better off taking out a lower interest rate loan and saving on monthly repayments.  

Just remember – a 30 year home loan lasts over 780 times longer than a two-week holiday to the United Kingdom. That’s a lot of slide nights before you can afford your next holiday.

There’s a sobering stat to bring you back to earth.

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Learn more about home loans

Can I take a personal loan after a home loan?

Are you struggling to pay the deposit for your dream home? A personal loan can help you pay the deposit. The question that may arise in your mind is can I take a home loan after a personal loan, or can you take a personal loan at the same time as a home loan, as it is. The answer is that, yes, provided you can meet the general eligibility criteria for both a personal loan and a home loan, your application should be approved. Those eligibility criteria may include:

  • Higher-income to show repayment capability for both the loans
  • Clear credit history with no delays in bill payments or defaults on debts
  • Zero or minimal current outstanding debt
  • Some amount of savings
  • Proven rent history will be positively perceived by the lenders

A personal loan after or during a home loan may impact serviceability, however, as the numbers can seriously add up. Every loan you avail of increases your monthly installments and the amount you use to repay the personal loan will be considered to lower the money available for the repayment of your home loan.

As to whether you can get a personal loan after your home loan, the answer is a very likely "yes", though it does come with a caveat: as long as you can show sufficient income to repay both the loans on time, you should be able to get that personal loan approved. A personal loan can also help to improve your credit score showing financial discipline and responsibility, which may benefit you with more favorable terms for your home loan.

Mortgage Calculator, Loan Purpose

This is what you will use the loan for – i.e. investment. 

What does going guarantor' mean?

Going guarantor means a person offers up the equity in their home as security for your loan. This is a serious commitment which can have major repercussions if the person is not able to make their repayments and defaults on their loan. In this scenario, the bank will legally be able to the guarantor until the debt is settled.

Not everyone can be a guarantor. Lenders will generally only allow immediate family members to act as a guarantor but this can sometimes be stretched to include extended family depending on the circumstances.

What is a redraw fee?

Redraw fees are charged by your lender when you want to take money you have already paid into your mortgage back out. Typically, banks will only allow you to take money out of your loan if you have a redraw facility attached to your loan, and the money you are taking out is part of any additional repayments you’ve made. The average redraw fee is around $19 however there are plenty of lenders who include a number of fee-free redraws a year. Tip: Negative-gearers beware – any money redrawn is often treated as new borrowing for tax purposes, so there may be limits on how you can use it if you want to maximise your tax deduction.

How common are low-deposit home loans?

Low-deposit home loans aren’t as common as they once were, because they’re regarded as relatively risky and the banking regulator (APRA) is trying to reduce risk from the mortgage market.

However, if you do your research, you’ll find there is still a fairly wide selection of banks, credit unions and non-bank lenders that offers low-deposit home loans.

Mortgage Calculator, Repayment Frequency

How often you wish to pay back your lender. 

What is a construction loan?

A construction loan is loan taken out for the purpose of building or substantially renovating a residential property. Under this type of loan, the funds are released in stages when certain milestones in the construction process are reached. Once the building is complete, the loan will revert to a standard principal and interest mortgage.

How often is your data updated?

We work closely with lenders to get updates as quick as possible, with updates made the same day wherever possible.

How personalised is my rating?

Real Time Ratings produces instant scores for loan products and updates them based what you tell us about what you’re looking for in a loan. In that sense, we believe the ratings are as close as you get to personalised; the more you tell us, the more we customise to ratings to your needs. Some borrowers value flexibility, while others want the lowest cost loan. Your preferences will be reflected in the rating. 

We also take a shorter term, more realistic view of how long borrowers hold onto their loan, which gives you a better idea about the true borrowing costs. We take your loan details and calculate how much each of the relevent loans would cost you on average each month over the next five years. We assess the overall flexibility of each loan and give you an easy indication of which ones are likely to adjust to your needs over time. 

What do mortgage brokers do?

Mortgage brokers are finance professionals who help borrowers organise home loans with lenders. As such, they act as middlemen between borrowers and lenders.

While bank staff recommend home loan products only from their own employer, brokers are independent, so they can recommend products from a range of institutions.

Brokers need to be accredited with a particular lender to be able to work with that lender. A typical broker will be accredited with anywhere from 10 to 30 lenders – the big four banks, as well as a range of smaller banks, credit unions and non-bank lenders.

As a general rule, brokers don’t charge consumers for their services; instead, they receive commissions from lenders whenever they place a borrower with that institution.

How much are repayments on a $250K mortgage?

The exact repayment amount for a $250,000 mortgage will be determined by several factors including your deposit size, interest rate and the type of loan. It is best to use a mortgage calculator to determine your actual repayment size.

For example, the monthly repayments on a $250,000 loan with a 5 per cent interest rate over 30 years will be $1342. For a loan of $300,000 on the same rate and loan term, the monthly repayments will be $1610 and for a $500,000 loan, the monthly repayments will be $2684.

Mortgage Calculator, Loan Results

These are the loans that may be suitable, based on your pre-selected criteria. 

What is the average annual percentage rate?

Also known as the comparison rate, or sometimes the ‘true rate’ of a loan, the average annual percentage rate (AAPR) is used to indicate the overall cost of a loan after considering all the fees, charges and other factors, such as introductory offers and honeymoon rates.

The AAPR is calculated based on a standardised loan amount and loan term, and doesn’t include any extra non-standard charges.

Monthly Repayment

Your current monthly home loan repayment. To accurately calculate how much you could save, an accurate payment figure is required. If you are not certain, check your bank statement.