Home Loan Comparison


Home Loans - How they work and how to select the best one

Buying a home is very likely to be one of the largest transactions you will make in your life and your home loan is probably going to be the largest debt you ever choose to incur. Given the amount of money involved in purchasing your dream house it is paramount that you do thorough research to find the best home loan for your circumstances. Select the best is designed to help you find the best home loan by presenting the details of many of the leading home loans in a clear and simple way and facilitating side by side comparison of the best home loans.

 

What is a home loan?

A home loan is a secured loan provided by a home loan provider, where the security on the loan is the property that you are purchasing with the assistance of the home loan. Home loans tend to be for periods of 25 or 30 years, with the homeowner making regular payments to repay this loan over this term. These home loan repayments are generally made either monthly or fortnightly and continue until the home loan has been repaid in full.

As the home loan is secured against your property it is imperative that you make all the repayments in full and on time as failure to manage these repayments in a timely fashion not only attracts fees but also could ultimately lead to the home loan provider taking procession of the property which they are able to sell to cover any outstanding debt on your home loan.

 

Types of home loans

The Home Loan Providers have designed arrange of Home Loans to suit the different circumstances of homebuyers. The 3 most common types of Home Loans are:

  • Fixed Rate Home Loan
  • Variable Rate Home Loan
  • Split Home Loan
  • Interest Only Home Loan
  • Line of Credit Home Loan

 

1. Fixed Rate Home Loan

Fixed rate home loans offer the ability to fix the interest rate on your home loan for a specific period of time, so for example you might choose to fix your interest rate at 2.5% p.a. for 3 years. The options of the interest rate at which you can fix, and the terms across which this interest rate will be applied, are specified by the home loan providers.

These fixed rate home loans are popular with home purchasers who are keen to know exactly what their repayments are going to be in the initial years of the home loan, as this often helps with managing the repayments as they will not change. As the interest rate is fixed the repayments will not be effected by any interest rate changes made across the fixed term period made by the home loan provider.

Fixed Home Loans are great if you are looking to guarantee that your monthly repayments will not change, but they do have some downsides as they generally do not allow additional repayments to be made and if you sell your property during the fixed interest term the home loan providers often charge an additional “break free” fee.

 

2. Variable rate home loan

The repayments on a variable rate home loan may change across the term of the loan as and when the loan provider decides to increase or decrease the variable Home Loan interest rate for their home loan products. These interest rate changes will directly impact the amount of your repayments, so these loans need to be managed carefully so that you have the funds to cover the repayments mindful of these potential repayment fluctuations.

Variable rate home loan are amongst the most flexible in the market, offering the ability to make additional payments and charging no penalty should you decide to sell your property prior to the full term of the loan.

 

3. Split rate home loan

With a Split Rate Home Loan your home loan is split with part of the loan being on a fixed rate and part being on a variable rate, the way you split your home loan between the 2 rates is generally your decision, with a 50/50 split the most common approach..

 

 4. Interest only home loan

Interest only home loans allow the home purchaser to pay only the interest charges on the home loan and no principle amount. These interest only home loans are popular with investors as they are able to claim the interest on the loan back as a tax deduction.

Although these interest home loans can look attractive, because of the lower repayments, they need to be considered with caution as they will generally be more expensive in the long term, so if you plan on keeping your property for along period these interest only home loans may not be the most relevant option for you.

 

5. Line of credit home loan

Line of credit is a loans enable borrowers  to take a loan against the equity in their home. This provides the ability and flexibility to access the loan at any time, up to  limit agreed with the provider, and to pay money into the loan at any time. It is not generally a loan set up to purchase a property, but rather set up against the equity in an existing property.

 

Home loan interest rates

Select the best compares home loans from many of the leading home loan providers to help home buyers navigate their way through the many home loan choices.

As home loans are taken over extended periods of up to 30 years small changes in the interest rate on your loan can impact the total cost of your loan over its full term. To understand what the monthly repayments will be on your mortgage use our free mortgage repayment calculator.

 

Home loan fees

The interest rate on your home loan will have the largest single impact on the cost of you home loan, but this rate should be considered in conjunction with the fees which the home loan providers may apply to your home loan, the most common of these are detailed below:

  • Service Fee: This fee is charged by the home loan providers to cover the costs of administering the loan, it is also sometimes referred to as the Account Keeping Fee.
  • Annual fee: Some home loan providers prefer to charge an annual fee as opposed the service fee noted above, both fees tend to cover the same services
  • Redraw fees: Home loans with redraw facilities tend to attract redraw fees.
  • Application fees: The majority of home loan providers will charge an application fee. This can be as low as $200 and as high as $600. This fee covers the providers costs for dealing with your application.
  • Valuation fees and surveys: Home Loan Providers want to ensure that you are paying a fair market price for your property by conducting a valuation on the property, which generally costs a few hundred dollars relative to the size of the property. The purpose of the valuation is to ensure that the properties value is in line with the amount of the home loan, so if you fail to make the home loan repayments the property value is sufficient to cover the mortgage cost.
  • Loan documentation/Lender's legal fees: These fees are paid to cover the home loan providers cost of producing the loan documents.
  • Lenders' Mortgage Insurance ("LMI") premiums: These are designed to cover the home loan providers cost for LMI premiums.
  • Mortgage registration, transfer fees & mortgage stamp duty: These must be paid to the applicable state government.

You may also want to pay for a more in depth survey to get some additional assurance on the structure of the property. You can either go for a basic survey, or a more in depth Homebuyers Report or full structural survey.

 

What is the cost of a home loan cost?

The cost of your home loan will be very specific to your circumstances are their a number of variables which will impact the cost of the home loan. The key variables which have been discussed above of interest rate, loan value, loan term, type of interest rate and the home loan provider fees all need to be considered in your calculations.

As a starting point in considering the size of your home loan we have provided so examples of loan values at an interest rate of 5% taken over a 30 year term.

 

Home Loan Value at start of the loan Monthly Repayment Total cost over 30 years
$300,000 $1,610 $579,767
$400,000 $2,147 $773,072
$500,000 $2,684 $966,279
$750,000 $4,026 $1,449,418
$1,000,000 $5,368 $1,932,558

 

 

Try the select the best mortgage calculator to understand the likely cost of your home loan.