The signs of a healthy home loan

The signs of a healthy home loan

Australians are health-conscious people. According to the National Health Performance Authority, we tend to visit our GPs between 2.6 and 7.5 times a year, depending on where we live — in Sydney alone, the frequency ranges from 4.9 in the North Shore to 7.5 in the city’s south west. These visits aren’t just about curing some obscure malady, but also about checking up on our health and making sure everything’s running smoothly — you want to nip any potential issues in the bud. 

But Australians shouldn’t just be thinking of their bodies as temples that need regular upkeep — they should think the same way about their home loans (in fact, for all we know, these mortgages may well be funding the purchase of temples). 

Here are a few indicators you should be evaluating to ensure your home loan is still fighting fit. 

How does your rate measure?

Generally, when you check your thermometer, the lower the number, the better — within reason. The Victorian government’s Better Health Channel informs us that approximately 37 degrees Celsius is normal body temperature. The higher up you go, the worse the fever is. 

Interest rates are similar to this, except you want them to be as low as possible. Take a look around and do a home loan comparison — how does your one compare? It could be, with the Reserve Bank having cut the official cash rate twice in the last four months, there are some much more affordable options out there now. 

Have your circumstances changed?

Our health issues can often be the result of some recent lifestyle shifts. Got a bung knee? Perhaps you’ve recently started doing more physical activities. Dealing with a cough? Maybe you’ve recently taken up smoking. 

Likewise, a change in your circumstances can make a home loan that once fit like a glove suddenly inadequate. For instance, you might have recently started a new job, or perhaps given up your old one, changing your monthly income. Or maybe you’ve started a family. In 2013, an AMP and University of Canberra report estimated that the average parent spends from $144 (for kids aged 0-4) to $717 (for those 18-24) a week on each child. That’s at least around $576-$2868 a month not going into your savings account, or your mortgage.

What goodies do you get to take home?

A typical GP visit is often followed by a quick trip to the pharmacy to pick up a cocktail of medicines that you’ll have to carefully take later on. It might even involve being given special tools that you’ll have to use to get better. 

Don’t put up with a home loan that withholds the necessary features you need to pay down your debt and build equity. Other products might offer mortgage offset accounts, which help you pay less interest, allow a redraw facility or even let you make additional payments on your home loan without being charged a fee. Your home loan should too. 

Are you paying for unnecessary charges and fees?

One of the signs that our bodies might not be in the best of shape is if we suddenly find it harder to do certain things we’ve never had a problem with before. Your friends can wolf down their curries, but you end up with a stomach ache, to the point of vomiting. Why are you paying this price?

It turns out, you should be asking the same question about your home loan. Unreasonable fees and charges shouldn’t be slowing you down, preventing you from paying off your mortgage quicker. These can include everything from charges on paying interest in advance, to redraw and service fees. The latter may be small — only around $10 a month — but put it in your home loan calculator, and over the course of 20 years, that can add up to thousands. 

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Learn more about home loans

What is the amortisation period?

Popularly known as the loan term, the amortisation period is the time over which the borrower must pay back both the loan’s principal and interest. It is usually determined during the application approval process.

Mortgage Calculator, Deposit

The proportion you have already saved to go towards your home. 

Who offers 40 year mortgages?

Home loans spanning 40 years are offered by select lenders, though the loan period is much longer than a standard 30-year home loan. You're more likely to find a maximum of 35 years, such as is the case with Teacher’s Mutual Bank

Currently, 40 year home loan lenders in Australia include AlphaBeta Money, BCU, G&C Mutual Bank, Pepper, and Sydney Mutual Bank.

Even though these lengthier loans 35 to 40 year loans do exist on the market, they are not overwhelmingly popular, as the extra interest you pay compared to a 30-year loan can be over $100,000 or more.

What is appraised value?

An estimation of a property’s value before beginning the mortgage approval process. An appraiser (or valuer) is an expert who estimates the value of a property. The lender generally selects the appraiser or valuer before sanctioning the loan.

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.

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.

Do other comparison sites offer the same service?

Real Time RatingsTM is the only online system that ranks the home loan market based on your personal borrowing preferences. Until now, home loans have been rated based on outdated data. Our system is unique because it reacts to changes as soon as we update our database.

How does a redraw facility work?

A redraw facility attached to your loan allows you to borrow back any additional repayments that you have already paid on your loan. This can be a beneficial feature because, by paying down the principal with additional repayments, you will be charged less interest. However you will still be able to access the extra money when needed.

What is the ratings scale?

The ratings are between 0 and 5, shown to one decimal point, with 5.0 as the best. The ratings should be used as an easy guide rather than the only thing you consider. For example, a product with a rating of 4.7 may or may not be better suited to your needs than one with a rating of 4.5, but both are probably much better than one with a rating of 1.2.

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.

What is the flexibility score?

Today’s home loans often try to lure borrowers with a range of flexible features, including offset accounts, redraw facilities, repayment frequency options, repayment holidays, split loan options and portability. Real Time Ratings™ weights each of these features based on popularity and gives loans a ‘flexibility score’ based on how much they cater to borrowers’ needs over time. The aim is to give a higher score to loans which give borrowers more features and options.

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 is appreciation or depreciation of property?

The increase or decrease in the value of a property due to factors including inflation, demand and political stability.

How much information is required to get a rating?

You don’t need to input any information to see the default ratings. But the more you tell us, the more relevant the ratings will become to you. We take your personal privacy seriously. If you are concerned about inputting your information, please read our privacy policy.