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By
Harvey Grennan, The Sydney Morning Herald
Choosing
the right lender can save you thousands of dollars over the period
of the loan and make a difference of up to 40 per cent in how much
you can borrow.
 But it's not as simple as finding the lowest advertised interest rate or a "no fees" deal. Low "honeymoon" rates for the first year or two can hide other charges and give a false sense of security you get used to a monthly repayment and a year later it goes up.
Compare the "effective" or "true" interest rates, which take into account application and bank fees and any "honeymoon" rate. Effective interest rates for all major lenders are published weekly in the Sun-Herald.
It's also important to know loan conditions, such as any penalties for early discharge or re-financing. Check to see if you can make extra payments, with or without a fee, and whether you can re-draw those extra payments if you need the money later.
You can borrow up to 95 per cent of the lender's valuation (not purchase price) of a residential property, but you will need to have saved about 10 per cent that's 5 per cent for the deposit and another 5 per cent for stamp duty and legal costs.
When you approach the bank, building society or other lender, you will need to take proof of your income (pay slips/group certificate), evidence of your savings (bank statements) and details of all your debts including HECS, car payments and credit cards.
You will then be advised of how much you can borrow. Armed with this "pre-approval" (for which some lenders charge a fee), you can go house-hunting with a realistic budget. Loan approvals "over the phone" are not binding. Always obtain a written loan approval before bidding at an auction.
You can borrow on a variable interest rate or a fixed-interest rate.
Fixed interest
rates are generally 1% higher than variable rates, but they can
protect you against higher repayments if variable rates go up. Many
lenders do not allow extra repayments and re-draw facilities with
a fixed rate.
You can take an each-way bet by taking half the loan on a fixed rate and half on a variable rate.
A mortgage broker can calculate across a wide range of lenders to determine which loan best suits your circumstances, but if using a broker check:
- That it is
not also a lender pushing its own products.
- That it costs
you no more than going directly to a bank.
- That it receives
identical commission from all its lenders.
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