An Essential Guide for Choosing a Mortgage Lender

 Nowadays, mortgages aren’t only about signing up for 25 years and making regular loan payments any longer. It is not even only about trying to pay off the mortgage as fast as possible. Freedom and mental peace are simply as important, and there's a wide spectrum of loan options for homes as well as commercial property loans that offer such advantages. But these add-ons can cost money, and the principal feature continues to be the interest rate. 

Categories of Mortgages 

There are three main categories: 

1. Basic Loans 

No unnecessary extra-featured loans with few components and a low-interest rate. Nowadays multiple lenders provide redraw facilities. However, there could be restrictions as well as fees. That’s why a basic loan may not be appropriate if you wish to make additional repayments and access them later. 

2. Standard Loans 

Provide extra flexibility compared to basic loans. For example, you may redraw any additional money you've paid in, and there’s the option to shift to a fixed rate or divide the loan into a fixed and variable portion. Additionally, they also offer a 100% offset account. However, you may often get a loan with a lesser interest rate and identical features. 

3. Mortgage Package 

A standard loan with an interest rate discount of nearly 1.2% based on your loan amount is inexpensive compared to multiple basic loans. Usually, the package includes a free transaction account without an annual fee credit card. But high package fees apply, close to $400 every year. 

Fixed or Variable 

If interest rates suggested by mortgage brokers in Australia are low, fixed rates appear alluring. However, there are the cons of minimized flexibility. High break costs are applicable if you wish to repay the loan earlier or migrate, and while a few fixed loans let certain additional repayments, there are usually restrictions and a few loans don't permit additional repayments at all, which will cost you leading to a high amount of interest over time. 

Never attempt to defeat the bank as it's very challenging to predict if you'll save at a fixed rate over the next three or five years. 

Rather, ask yourself whether higher rates are affordable to you or not. If not, fixing at least a small portion of the loan could be a better option for you. A split loan provides the best of both worlds, letting you make additional repayments in the variable portion of the loan and yet providing you with the protection of a fixed rate. 

Check the Fees 

Interest rates for the best online home loans in Australia are just one of the costs to review. Also, you must check the usual charges. Establishment costs and fees can make a huge difference to the amount you pay for your mortgage. 

Don't hesitate to ask your bank for a better deal. Often, interest rate discounts and fees waived are two things to consider, particularly if you wish to borrow a huge amount. 

Monitor the comparison rate, that considers fees into account, making it convenient to compare loans. 

A few common fees are as follows: 

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• Application Fees 

Lenders can charge a direct establishment fee and application fee. Request the lender for a waiver of these fees, or at least attempt to negotiate a discount. 

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• Lender's Mortgage Insurance  

(LMI) is applicable when you don't have a 20% deposit and it may cost you thousands of dollars. It doesn't insure you, but the lender if you default on the loan. It doesn't even release you from the debt. The insurer may pursue you for it. Attempt to have as high a deposit as possible. Even a minimal difference in the deposit may contribute to a difference in the LMI cost. 

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• Valuation Fees & Lender's Legal Fees 

Additionally, lenders may charge for an evaluation of the property. If you do not meet a lender's income requirements for the loan, tell them to check first before proceeding with the estimate, as you may need to pay for the valuation even if your loan isn’t approved. 

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• Break Costs 

Fixed-interest loans may have exorbitant exit fees, particularly if the variable interest rate is less compared to the fixed rate you're paying. If you wish to move out of the mortgage, you may have to cover all the 'lost' interest the bank would have made had you paid the higher rate through to the end of the fixed term. This is known as the 'break cost'. 

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• Monthly or Annual Fees 

High ongoing fees can be impactful on how fast you can pay back the loan. 

Inference 

Prepare a list of the best mortgage lenders in Australia and then approach them one by one. Find out who’s offering you the most lucrative deal.