How to take out a home loan


Nick Bendel

Nick Bendel

( 5 min read )

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There are three ways to take out a mortgage in Australia, whether you’re an owner-occupier who wants a principal-and-interest loan or an investor who wants an interest-only loan.

You can use a mortgage broker. You can go direct-to-lender. Or you can use a comparison website like RateCity.

To help you decide which method to use, we’ll explain the key facts, outline the pros and cons, and tell you the next steps to take once you’ve made your choice.  

Use a mortgage broker

The traditional mortgage process involves approaching three home loan lenders, listening to them spruik their products and then choosing the most attractive offer.

This is time-consuming and – unless you’re a finance expert – can be very confusing as well.

That’s why more than half of Australians now use mortgage brokers, middle-men whose job is to help a borrower organise a suitable home loan with a lender.

Brokers are home loan experts, so they understand the mortgage market’s complicated rules and baffling jargon.

Mortgage brokers generally work with anywhere from 10 to 40 lenders – far more than the three you might visit on your own. That means you’re exposed to a far wider variety of home loan options.

Another advantage of brokers is that they generally won’t charge you for their services. Instead, they’ll charge the lender (in the form of a commission) if they end up organising a home loan for you.

However, there are also several downsides associated with mortgage brokers.

First, there are about 150 mortgage lenders in Australia, which means you’ll get exposed to only a minority of options if you organise a home loan through a broker.

Second, some unscrupulous brokers might steer you to a particular home loan not because it’s in your best interest but because it pays them the highest commission.

Pros
  • Wide range of options
  • Free expert advice
Cons
  • Only a minority of options
  • Some brokers are unethical

 

What to do next

If you want to find a broker, you can do an online search with the MFAA or the FBAA, which are the mortgage broking industry’s two professional associations.

Here are 10 questions to ask while you’re shopping around for brokers and then deciding which home loan to select.

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Go direct-to-lender

Some people prefer to take full control over the home loan application process rather than outsource it to a mortgage broker whose motives or competence they might not trust.

But a word of warning: while going direct-to-lender might give you greater control, bank employees can’t be relied on to give independent advice. That’s because their job is to promote their own products, not to tell you about better options from a rival provider.

If you do decide to go direct-to-lender, make sure you do your research before deciding on your home loan provider of choice.

You might be tempted to automatically pick your current bank. However, there are about 150 banks, credit unions, building societies and non-bank lenders in the mortgage market – so the odds of your bank having the most suitable home loan for you are actually remote.

Pros
  • Full control over the process
Cons
  • Advice is not independent

 

 

What to do next

The easiest way to research your options would be to use a home loans comparison website like RateCity. Alternatively, you could browse lender websites, hit the phones or pop into branches.

Once you’ve settled on a lender, you’ll probably have to visit a branch to make your application – although some lenders will allow you to take out a home loan over the internet.

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Use a comparison website

The third and final way to take out a home loan is to go through a comparison website like RateCity.

A comparison site allows you to quickly and efficiently assess home loans based on criteria like:

  • Mortgage rate
  • Fees
  • Deposit size
  • Loan features

A comparison site should also allow you to crunch numbers by offering tools like a repayments calculator, borrowing calculator, stamp duty calculator and refinance calculator. That should help you figure out how much you can borrow, which in turn should help you figure out which loan would best suit your unique financial circumstances.

The downside of taking out a loan through a comparison website is that you won’t have a mortgage broker to hold your hand through the process. Instead, you’ll be guided by your lender of choice, which will be giving you self-interested rather than independent advice.

Pros
  • Easy to compare lots of options
Cons
  • You’ll have to use a lender anyway

 

What to do next

The first step is to thoroughly research your options. If you do decide to take out a loan through RateCity, the next step is to click the green button – the one that says ‘Enquire Now’ or ‘Apply Now’ or ‘View Now’.

Finally, don’t rush into anything. Make sure you weigh up your options and think of the consequences before signing any paperwork. Also, consider whether it would be in your interests to get advice from a mortgage broker or financial adviser.

How to take out a home loan

  1. Visit a mortgage broker
  2. Go direct-to-lender
  3. Use a comparison website
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^Words such as "top", "best", "cheapest" or "lowest" are not a recommendation or rating of products. This page compares a range of products from selected providers and not all products or providers are included in the comparison. There is no such thing as a 'one- size-fits-all' financial product. The best loan, credit card, superannuation account or bank account for you might not be the best choice for someone else. Before selecting any financial product you should read the fine print carefully, including the product disclosure statement, fact sheet or terms and conditions document and obtain professional financial advice on whether a product is right for you and your finances.

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