finance

A finance expert tells us exactly how to pay less on a mortgage.

eChoice
Thanks to our brand partner, eChoice

Being in a position to be able to buy your first home is incredibly exciting. But what usually comes with owning a home is a home loan, and when you’ve never done it before, taking out a mortgage can be overwhelming to say the least.

Financially, you’re making the biggest commitment of your life to date. No-one gives you a handbook for what to do, so if you can use a few hacks to potentially save money on yours, you’re already a step ahead.

So Mamamia spoke to Peter Andronicos, Chief Executive Officer at home loan comparison site and mortgage brokerage eChoice, who shared with us everything we should know about taking out a mortgage and the hacks that could save you thousands.

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Peter Andronicos, Chief Executive Officer at eChoice. Image: Supplied.

What's the best way to negotiate a lower interest rate with your lender?

Peter says when it comes to getting the best interest rate, it pays off to do your homework.

"The best research is the research you do yourself - find out what a competitive rate looks like and be sure to check what your lender is offering to new customers as an introductory rate," Peter says.

"Let the bank know if you think you could be getting a better deal elsewhere and tell them you’ll switch to another lender if they won’t budge. You’ve got nothing to lose by asking them for a lower rate and if you’ve got facts to back you up, they’re more likely to take you seriously."

And if you’re not sure where to begin, eChoice offers an obligation-free and easy-to-use rate comparison tool, which can compare rates across more than 25 different lenders.

Should you shop your home loan with multiple banks when trying to make a decision?

When it comes to deciding on which bank you will take your mortgage out with, according to Peter, you should always shop around with banks and non-bank lenders to make sure you’re getting the very best deal on your interest rate and home loan.

"While you may be set on getting a mortgage through the bank you’ve been with for years, it’s important to do your due diligence to ensure they’re offering you a competitive rate," Peter encourages.

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"The ACCC recently found that 70 percent of borrowers only obtained one quote before taking out their home loan, with the perceived difficulty of shopping around for home loans the major reason for not doing so."

Peter says he wishes more people knew how much easier a mortgage broker can make the whole home loan process.

"Our brokers can compare hundreds of loans with up to 25 lenders and present competitive options to you before you commit. If you’re short on time or nervous about the process, a broker really is invaluable."

What are the benefits of having a home loan package and is there any way to negotiate on the annual fee?

Home loan packages, Peter says, allow you to apply all the bells and whistles to your loan.

Home loan packages, Peter says, allow you to apply all the bells and whistles to your loan. Image: Supplied.

"Home loan packages usually include a redraw facility, offset account, credit card and the option to bundle other financial products offered by your lender," he says.

"Interest rates on home loan packages tend to be lower than a standard mortgage, often by about 0.5 percent. Package home loans are popular amongst borrowers with larger loan sizes who are looking for convenience.

"A cost generally applies to home loan packages and is paid as a single annual fee rather than a monthly account keeping fee that you might be charged on each product, but a mortgage broker may be able to negotiate this fee on your behalf."

What is the difference between a fixed and variable home loan and which would you recommend?

When it comes to choosing between fixed and variable, Peter says it is completely up to the borrower and their individual requirements, and there are pros and cons of both types of home loan.

Here's what you need to know:

Variable loans.

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"The interest rates on variable loans - the most popular type of loan we see at eChoice - are determined by lenders and can change at any time. They often move up or down in line with the Reserve Bank of Australia’s official cash rate and lender movements and other market fluctuations.

"Some borrowers find the lack of certainty in variable rates concerning, while others welcome the freedom. Under variable rates, customers can pay off their loan as quickly as they want, without penalty."

Fixed rate loans.

"Fixed rate loans have a fixed interest rate for a specific term, usually between one and five years, and repayments remain consistent over this period. Fixed rate loans can give borrowers budgeting reassurance, since there’s a level of protection from rising rates.

"The downside is that if variable rates drop, then you could end up paying more than you would have on a variable rate. Plus, extra repayments are subject to early repayment break fees, and features such as offset and redraw are typically not available."

What are the benefits of splitting your home loan between fixed and variable?

Another option when considering what type of loan you want to take out is a split between variable and fixed.

"Split rate loans could give borrowers the best of both variable and fixed rate loans," Peter explains.

"This loan type allows lenders to split their loan over multiple accounts that attract varying rates of interest. Split rate mortgages could offer you some protection against rate rises, without excluding loan features, and may be attractive to buyers looking for security and flexibility."

If you have a variable home loan and your interest goes up, is there anything you can do about it?

Rates fluctuate all the time and it’s normal for rates to increase, says Peter, particularly if you started on a very low introductory offer.

"The best thing to do is some market research to see if your current rate could be improved by switching lenders," he says.

If you’re unhappy with your interest rate, you can also get in touch with eChoice and one of their experienced home loan consultants can assess if refinancing could be a viable option for you.

What is the best frequency to pay your home loan?

It can be hard to believe, but a simple change like increasing the frequency of your repayments can have a big impact on decreasing your mortgage over time.

"Increasing your mortgage repayment frequency could help to decrease the amount of interest you pay on your loan over its lifetime. On a $500,000 loan with an interest rate of five percent - changing your payments from monthly to fortnightly could save you close to $86,000 over the loan term," Peter tells us.

"To get these savings you will need to halve the minimum monthly repayment provided by your lender and pay that amount fortnightly (rather than paying the minimum fortnightly payment calculated by the bank). This is because a year has 26 fortnights, which adds up to 13 monthly repayments, instead of 12.

"Home loan customers should note that most lenders, when calculating fortnightly payments, multiply the monthly repayments by 12 and then divide it by 26 to get the fortnightly amount when they calculate fortnightly repayments. While this is correct, it won't reduce your home loan as quickly."

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It’s also easy to change the payment frequency – just speak to your bank, lender or mortgage broker and they’ll let you know how much your new payments will be and when your payments should be made.

Do you need an offset account?

Peter says determining whether you need an offset account is very much dependent on your priorities. But having a feature like an offset account on your loan is another way to potentially decrease the amount of interest you pay.

"Rather than keeping your savings in an account separate to your home loan, you could transfer it into your mortgage offset account. This will mean you are charged interest on the current loan balance minus the amount of money sitting in your offset account – potentially saving you thousands of dollars over your loan’s lifetime," Peter says.

"For example, if you took out a loan of $500,000, have paid off $200,000 and there’s $50,000 of savings in your offset, the interest will only be charged on the remaining $250,000, potentially reducing the amount of interest payable over the life of the loan."

Can you still negotiate on your home loan after you have taken it out?

One of the great things about using a mortgage broker to find your home loan, Peter explains, is that the service they provide continues well beyond your settlement date.

"Your mortgage broker will keep an eye on interest rates to make sure you’re still getting the best deal and they can negotiate with your lender if required. They’ll be the middle man between you and the lender for the lifetime of your loan and their service usually comes at no cost to the borrower."

How can a mortgage broker help you to get a better deal on your home loan?

Mortgage brokers write nearly 60 percent of all new residential home loans in Australia – the highest broker share ever recorded – and there are so many benefits of using an eChoice broker, Peter says.

"One of which is their ability to compare home loan options from a wide variety of lenders: from the big four banks to smaller non-bank lenders," he tells us.

"While you’d have to invest a lot of time to compare multiple loans and interest rates yourself, brokers can use their expertise, relationships with lenders and specialised software to do the legwork for you.

"Once your broker has rounded up the best deals based on your circumstances and requirements, they can explain the subtleties of each option and help you understand the complex terms you’ll often see used in the finance world, ultimately helping you to decide which option is best suited to your needs.

"They’ll also negotiate directly with the lender on your behalf, sort out the paperwork and help to get your application processed as quickly as possible."

Got more questions? Get a free eChoice home loan report here.

*Things you should know:
Copyright © Finconnect (Australia) Pty Ltd trading as "eChoice", ABN 45 122 896 477 Australian Credit Licence 385888. Terms and conditions, fees and charges and normal lending criteria applies. Interest rate is correct as at last update. Interest rates to existing borrowers may vary to the advertised rate. Comparison rate based on a loan of $150,000 over 25 years. WARNING: This comparison rate is true only for the example or examples given and may not include all fees and charges. Different terms, fees and other loan amounts may result in a different comparison rate. The information provided is general advice only as, in preparing it eChoice did not take into account your lending objectives, financial situation or particular needs. Before making a decision on the basis of this information, you should consider how appropriate the information is to your particular lending needs, and objectives. eChoice and its partners may receive a referral fee.
eChoice

Are you looking to buy a new home, refinance your current home loan or purchase an investment property? eChoice’s expert brokers can help you understand the market and then simplify the process of applying for a mortgage. We have access to hundreds of products with a panel of 25 lenders, so we’ll find you a competitive rate. Visit our website to check your borrowing power, calculate stamp duty, generate a home loan report or receive complimentary and obligation-free advice from our team.

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