July’s best home loan deals
Even with home loan interest rates being at their lowest for a long time – there are several products on the market with rates below 2.5 per cent p.a. – it’s still important to look for the best ones out there.
When you’re looking at mortgages, you need to look at three main factors, namely the interest rate, the fees and any extra features the product offers.
The lower the interest rate is, the better (usually)
You’re always going to want to pay as little as possible and the size of your monthly home loan repayments is determined primarily by the interest rate.
To offer an example, think about someone taking out a principal and interest (P&I) mortgage for $450,000 with an interest rate of 2.89 per cent p.a. over a 25–year term. The mortgage is P&I, so the borrower is paying off the principal amount as well as the interest generated each month.
This mortgage deal results in monthly repayments of $2,108. If the interest rate is 2.39 per cent p.a. the payments reduce to $1,994, which is a difference of $114. Alternatively, if the interest rate is 3.09 per cent p.a. the repayments go up to $2,155 each month. Play around with a mortgage calculator to find the combination of term and interest rate that’s comfortable for you.
The fees also matter
If your home loan comes with various fees, such as establishment fees or monthly management fees, then this is going to bump up your cost over time. This is why it’s important to look at the comparison rate, because this gives you the true cost of your loan. The monthly fees might seem small compared to your actual repayment, but they can add up. It’s possible sometimes for fees to outweigh the savings made by a low interest rate, so always do your sums when you’re comparing home loans.
The features and extras included can make a difference
Many home loans nowadays come with added features and facilities that can offer you more flexibility and control over your repayments.
If you can move your home loan to a new property without refinancing or reapplying, then this is a definite bonus.
The ability to make overpayments
If you can make overpayments without penalties, then you’re reducing the amount of interest you’ll pay overall. You’ll also, if you make enough overpayments, shorten the duration of the mortgage.
You might need to redraw some of your overpayments in the future, so if your loan product allows this, it’s a good prospect.
The facility to split the loan into fixed interest and variable interest portions
There are pros and cons to both fixed interest rates and to variable interest rates and it can be hard to choose between the two when it comes to a home loan. A variable rate means payments can go down and a fixed rate offers predictability and also a buffer against rate rises on the variable portion.
Don’t forget about the term length
The number of years a mortgage runs for also has a big impact on both the monthly repayments and on the total amount of interest paid. That $450,000 mortgage, if the interest rate is 2.89 per cent p.a., will cost $2,108 each month if the term is 25 years. If the term is reduced to 23 years, however, then the monthly repayments will increase to $2,234.
While the monthly repayments are higher, the borrower will actually pay less in interest over the course of the mortgage. On the 25–year deal, the total amount of interest is $182,488, while the 23–year home loan means $166,527 in interest.
The best Australian mortgage deals for July 2020
Finding the best home loans is very subjective and is based on individual’s needs, ability to qualify for a product and product criteria.
There are several products on the market right now that offer borrowers sub–2.50 per cent p.a. interest rates, but it’s important to look at the fees and features before jumping in.
The Freedom Lend owner occupied special variable P&I home loan has a low rate of 2.17 per cent p.a. but is only available to borrowers with a deposit of at least 30 per cent of the property’s value. Unusually for a low–rate mortgage, this product has a wide range of features, including overpayments and redraw, as well as the option to split between fixed and variable rates. There are also no ongoing fees.
Well Homes’ Well Balanced variable home loan can offer borrowers with at least a 20 per cent deposit an interest rate of 2.47 per cent p.a. (comparison rate 2.50 per cent p.a.). You can make and redraw overpayments, as well as split the loan between fixed and variable rates, but it’s not portable.
The Liberty Financial Sharp home loan can offer a mortgage to low–document borrowers or borrowers with bad credit ratings. The maximum loan–to–value ratio is 65 per cent, so this means a minimum deposit of 35 per cent of the property’s value. The variable interest rate is 2.89 per cent p.a. (comparison rate 2.96 per cent p.a.) for mortgages ranging from $100,000 to $500,000. The application fee is $995, but there are no ongoing fees.
The Reduce Home Loans Home Owners Dream mortgage is a fixed for three years at 2.29 per cent p.a. (2.53 per cent p.a. comparison rate) and applicants can borrow up to 90 per cent of the property’s value. It’s a fairly no–frills mortgage, with no overpayment of redraw facility, although you can split the loan into fixed and variable portions. You can also link an offset account to the mortgage to reduce your interest payments.