Before we start, the best tip I can give you is… DO NOT DO IT YOURSELF… It took me years to work out that when friends looked at my home renovations and said, “nice tiling … do it yourself?” it was not a compliment. They were being polite. The fact that they could tell I had done it myself said it all.
I was about to start on this article when a thought appeared – why tell my clients (some of whom have been with me for 10-20 years) what they should look for? When instead I could ask them, what was most important to them, so I did.
Q. What are the most important factors to take into consideration when looking for your best home loan? On most points there was common agreement, 1-9 are their answers. 10 and 11, are points of discussion.
- a low interest rate
- low (or no) fees
- an offset account – at least one
- ability to redraw
- principle and interest repayments
- ability to pay extra – unlimited
- good internet banking – and must have a smart phone app
- have banking and home loan in the same place
- flexible – the ability to change my loan with life’s changing needs
- certainty over repayments
- a broker to guide me through the process
This was indeed an interesting exercise for a couple of reasons.
The first, all of the responses I received are indicative of a need for a certain level of flexibility within a home loan, yet I often have clients ringing and asking me about fixing their loan.
I have spent my entire broking career attempting to educate my clients into believing that “the best time to fix your loan is never”.
If a client rings me and asks me if it’s is a good time to fix, I will say – if NEVER is the best time to fix then the “now” is obviously incorrect.
If they persist, I then (with humor) suggest that I will get them the phone number of someone else who will help – because I will NOT help them fix their loan, because I don’t want to deal with their tears down the track.
Our lives are flexible, and we need our most important financial transaction to match that. Fixed and flexible are eons apart.
What people sometimes mean when they ask about fixed is that they want certainty over their payments, NOT to lose the flexibility of their home loan.
They (and you) can have that, by ‘fixing’ your payments – not your rate. Repay your mortgage payments as if the rate is 6% and build a ‘buffer’ of unused funds inside your loan – which can be redrawn in an emergency. (if you’d like to know how to work out your own repayments at 6%, use my handy loan repayment calculator here)
Variable is cheaper – history proves it – there is no debate to be had.
Fixed comes with a price premium, and a complete loss of flexibility.
The second reason this was such an interesting exercise, and I’m not sure if it was a surprise or not – Not one person said that the best home loan comes with my own broker.
The benefit that a broker adds to your borrowing life is that I understand the game being played.
The most cynical of games is the way all banks give spectacular deals to new clients while allowing the rates of older clients to drift away from the market with what they call “out of cycle rate rises”
In Australia loyalty is rewarded in reverse.
A more subtle game being played is the way in which banks arrive at your rate.
Some banks price against their own “standard variable” plus a discount, others simply price your loan.
The best by far is to have a standard less a discount – this is much more transparent going forwards.
It is far murkier to have a product with a price – when does that price move? The answer is – it moves in the shadows and banks who price this way do it quite deliberately.
If rate, fees and flexibility are the key benefits of a good loan, then only a broker has the time to stay on top of this for you while you go about your daily lives.
If you’d like to know how a broker could help you make your home loan work better for you, Ask Alan – call or email anytime.
Ask Alan – Your online mortgage broker.