Newsletter Articles

How to get the cheapest loan

I read with great interest a recent article in Brisbane’s ‘Courier Mail’ regarding what customers considered when applying for a home loan.

InfoChoice and Homeloans Ltd recently conducted a survey of current and prospective home loan borrowers regarding loan options, interest rates and government assistance. One of the most intriguing results demonstrated that, given the choice, most (30 per cent) of Australian home loan borrowers would take a short term outlook and opt for the most expensive home loan. Unbeknownst to the majority of mortgagors, according to InfoChoice, choosing the wrong loan can cost borrowers as much as $18,000 more than the cost-effective option, over the term of the loan.

Opting for a higher interest rate in exchange for a nil application fee can cost you dearly in the long run. Financial institutions know customers think short term (the here-and -now), even if the loan is in the long term (usually a 30 year loan term), and often use this as an advertising ploy.

Different types of borrowers require different loans. Someone buying a family home should be more interested in lower interest rate that provides a buffer in the event of interest rises and lower repayments. On the contrary someone looking to speculate on investment property in the short term might actually get more value out of a loan with a nil application fee and a slightly higher interest rate. This type loan only has short term benefits, and the borrower should ensure it does not involve any hidden on going fees.

The Info Choice / Homeloans survey has given us an insight into the views of the wider community. It is obvious that investing in property, and choosing the most cost effective loan is a major concern of today’s society. However, with some financial institutions taking advantage of their short term thinking customers, and governments providing minimal assistance it is imperative that we all do our homework before pursuing the great Australian dream of owning our own home.