According to Smartline Personal Mortgage Advisers, while selecting a loan and lender can seem daunting, with a few ‘smart tips’ finding one to suit your individual needs can be easy.
“While it’s possible to generalise about borrowers’ requirements, ultimately no two people are exactly alike – and it’s a mistake to think that ‘one size fits all’ when it comes to finance,” said Chris Acret, Smartline’s managing director.
Smartline offers these top five tips for choosing a lender.
1. Know your goals and develop a checklist so that you can assess lenders’ flexibility
“It’s a good idea to develop a checklist of things you’re looking for, but it’s equally as important that your checklist be flexible and that you’re open to potentially changing your priorities,” said Acret.
“For example, the lender you currently have your transaction accounts with may not have the best loan product to suit your needs or, simply, if one of your priorities is to have an offset account attached to your loan, you may not be able to access it via an ATM.
“Things that may seem unimportant now, could prove very inconvenient down the track.”
2. The interest rate is only one of many factors in your decision
Acret said that while interest rates are an important aspect of your evaluation, it should not be the sole reason for making your decision.
“Generally speaking, mortgages are held over a long period of time and this means that the cost of interacting with the bank, over what is usually many years, needs to be taken into account,” he said.
“A honeymoon rate might look attractive now, but it’s not likely to save you money when and if you decide to use the lender’s other services – such as repayment holidays, a redraw facility, a loan top-up or accessing your lender’s and other lenders’ ATM facilities.
“It’s important to consider the whole cost of the loan which means taking everything into consideration – from product features to product fees, which may incorporate application fees, annual fees and exit fees.
“At the start of the mortgage you may not think there is a possibility that you might repay or re-finance your loan within four years, but your situation may change meaning exit fees will become an issue.”
Exit fees are often referred to as ‘early termination fees’, which is the cost of closing the loan. Different banks use different terminology and early termination fees can also be known as deferred administration fees, deferred establishment fees or early repayment fees.
3. Consider lenders’ overall services and offerings
Lenders present a range of services and offerings that might not seem appropriate now but could be in the near future.
“Typically, our lives are changed by events that can make a difference to the way we view our mortgage,” he said.
“These life events might include taking an extended holiday, getting married, having a family, being promoted, changing jobs, being made redundant or starting your own business, and each of these has an impact that may mean we need different things from our home loan to suit these new circumstances.
“So, when considering lenders investigate all loan offerings – like whether or not you have the ability to switch from a variable to a fixed rate, substitute security or access redraw – and their services, such as access to ATMs, and internet and phone banking.”
4. Ensure your lender can work with you to get your loan structure right
Acret said that loan structuring, which covers the type of loan you use, how you fund the required deposit, what securities are provided and what type of payments you make, is important for any property purchase, but even more so for an investment property because of the associated taxation issues.
“As such, it’s important to make sure the lender you choose can structure your loan – or loans – in a way that suits your individual needs.”
5. Shop around
Australian lenders operate under regulatory guidelines designed to encourage responsible lending. One of the most successful aspects of these guidelines has been the Ability to Repay Test, which is commonly referred to as serviceability or borrowing capacity.
“Lenders must demonstrate they’re satisfied that borrowers can afford to repay their debt, but each of them interpret the Ability to Repay Test in different ways, therefore the loan amounts lenders deem to be responsible also differ greatly,” he said.
“Also, some bank use different income sources in different ways, so a customer on a given income level may be able to borrow more or less with different banks.
“The borrowing capacity can vary so much from lender to lender that just going with the lender you currently bank with could limit your home purchase price – so it pays to shop around.”
Since the global financial crisis (GFC), lenders have developed a range of policy innovations and made significant changes to their lending criteria.
“Credit policies have always varied from lender to lender, but there is now much closer scrutiny being paid to loan applications and borrowers’ credit histories – including, for example, the number of credit applications you make,” said Acret.
This article was sourced from a media release sent by Smartline. For more info, go to www.smartline.com.au