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Can comparing home loans save you money?

Can comparing home loans save you money?

Whether you are a first-time buyer looking for a home loan, or looking to refinance your existing mortgage, you may find it easier to discover some of the best home loan offers for your circumstances by shopping around and comparing multiple deals.

Looking beyond the major banks

Many Australians are already customers of one of the major banks, so one of the simplest ways to get a home loan may be to contact your bank and ask for an application form. However, this could also mean missing out on other mortgage deals that may better suit your financial circumstances. 

While home loans from big banks may offer convenience as well as a range of features, they aren’t always the most affordable choices when it comes to their interest rates and fees. If your goal is to save money on your mortgage, it may be worth your while to look beyond the big banks - you may find a competitive home loan offer from another bank or specialist mortgage lender that also suits your needs. 

More than one way to save

Signing up for a home loan with a low interest rate could help you save you money in more ways than one, depending on your circumstances.

For example, switching from your current home loan to a mortgage with a lower interest rate could save you money from month to month, as you’ll be charged less interest on each repayment. This can put more money back into your household budget, easing your financial pressure.

However, if you can afford to keep making the same repayments you were making before you switched, each repayment could pay off a larger chunk of your mortgage principal. This can help you to pay off your property that little bit faster, potentially saving you more in interest charges over the long term.  

Keep in mind that interest is just one of the costs involved with a home loan. Many lenders also charge upfront and/or ongoing fees with their home loans, which can affect their overall cost. 

One quick way to get an idea of a home loan’s overall cost is to look at the comparison rate, which combines the loan’s interest rate and standard fees and charges into a single percentage. Just keep in mind that not all fees and charges may be included in the comparison rate, and that all home loan comparison rates assume a $150,000 home loan over a 25 years term for consistency, which may not match your home loan.

Consider the overall value

Remember to consider more than just the cost of interest charges and fees when comparing home loans. Depending on your situation, sometimes a home loan’s other features and benefits can offer extra value and/or help you save money. 

For example, the ability to make extra repayments may help you to pay off your property faster and save on interest charges, and a redraw facility could allow you to access these extra repayments if you need them again in a hurry. And an offset account could allow your savings to help reduce your home loan interest charges. 

Keep in mind that the more features and benefits a home loan offers, the more likely it is to charge a higher interest rate – sometimes a more basic low rate no frill home loan can cost less than one with all the bells and whistles.

One quick way to get an idea of a home loan’s cost and flexibility is to compare Real Time Ratings™ on RateCity. These simple star ratings are updated daily, to give you a better idea of the value offered by different mortgage deals. 

Getting help when you need it

If you aren’t familiar with home loans, it can be challenging to work out which options may be the best for your needs while helping you to save money. And even if you are familiar with home loans, it can help to have an expert in your corner to help you save more time and hopefully more money.

Mortgage brokers are home loan experts who can recommend mortgage deals to suit your finances, negotiate with mortgage lenders on your behalf, and help manage the paperwork in the application. Plus, because mortgage brokers are paid commissions by lenders, you can usually get their help for free! 

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This article was reviewed by Personal Finance Editor Alex Ritchie before it was published as part of RateCity's Fact Check process.

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