How to research home loans like a pro

Just as you’d scour the web for information on a new fridge or TV, it’s in your best interest to do your research when it comes to home loans, too. After all, it’s likely to be one of the biggest financial decisions you’ll ever make.

When you’re researching home loans, it can help to narrow things down to one type of home loan – for example, you might want to compare variable interest loans. Apples with apples, so to speak. Then, once you’ve got an idea of what suits you and a home loan you like the look of, it’s time to jump on the phone and ask some pointed questions of potential lenders. But what do you ask?

Let’s take a look at some of the best things to quiz lenders on. Your goal is to gather the information you need to make an astute decision – so grab a notepad to jot down their answers, and then fire away.

What’s your interest rate and comparison rate?

As well as getting their rates, you could ask lenders to explain the difference between their interest rate and comparison rate. Depending on the amount you borrow, the comparison rate may be less important.

Remember, while the comparison rate is a great way to compare loans, it doesn’t paint the complete picture. You’ll also need to ask about loan features (more on that below).

What are your fees?

Theoretically, the cost of fees is incorporated into the comparison rate. But it’s still a good idea to get these fees down on paper – just so you know what’s ahead of you. While different lenders may call these fees different things, they’ll know what you’re talking about when you ask the cost of:

• Lenders’ mortgage insurance (LMI) – a one-off fee that most lenders charge if your deposit is less than 20% of the value of the property
• Break costs – a fee, which can be very high, that may be charged if you exit a fixed rate mortgage before the end of the fixed rate period
• Discharge fee – also called the termination or settlement fee, this may be charged when you pay out your mortgage in full
• Annual fees – many loans come with ongoing admin fees, which may be charged every month or year
• Establishment fees – some lenders charge an application fee, which may include the legal costs of writing your home loan.

There may be other fees. By law, a lender has to tell you about all the fees and charges linked to a home loan – so ask away.

What extra features do you offer?

This one’s important. As mentioned above, while the comparison rate is handy, it doesn’t paint the full picture. Some loans come with extra features that may help you pay off the loan faster or reduce the amount of interest you pay over the life of the loan.

You’ll be looking for things like:

• Extra repayments – if you’re in a position to make extra repayments (on top of the minimum monthly repayment) then this is a handy feature that could help you pay off the loan faster
• Redraw – if you’ve made extra repayments, then this feature lets you access those repayments if you need them
• Offset account – this is a transaction account linked to your home loan, and the money in this account reduces the amount of interest payable so you could pay off your loan faster

Remember that there are usually extra fees for these features, so make sure you factor that into your decision, too.

How much can I borrow?

Before you start house-hunting, you’ll need to know roughly how much you can borrow. A lender should be able to give you an idea of your borrowing power once you tell them about your income and expenses.

How much deposit do I need?

You can ask this question, but don’t expect a simple answer. Ultimately, it depends on how much you want to borrow and whether you’re prepared to pay LMI. If you’re keen to avoid paying this insurance, then generally lenders like to see at least a 20% deposit (that is, 20% of the value of the property). Or, if you’re happy to wear the cost of LMI, then you’ll need to find out from the lender just how low you can go with your deposit. Remember, the lower the deposit, the more LMI you will have to pay.

How long does it take to get a loan?

If you’re getting to the pointy end of the house hunting process, then you might be keen to know just how quickly a home loan can be approved. It’s useful to find this out in the early stages regardless, so you can plan ahead.

Do you offer pre-approval?

Pre-approval can be a handy step when buying a house. By going through the pre-approval process, you find out exactly how much you can borrow – which then helps narrow down the search when you’re house-hunting. Ask if the lender provides formal, written and signed pre-approvals – some lenders offer non-formal versions which aren’t rock-solid when it comes time to apply for the home loan proper.

Don’t forget to come prepared

In that first conversation you have with a lender about a home loan, they will likely ask you a lot of questions, too. It’s their way of checking whether your enquiry is legit.

Expect to answer questions about:

• Your personal life (partners, kids, etc)
• Your income
• Any debts you have (including credit card limits)
• Your monthly expenses (and, yes, this includes things like your Spotify subscription)
• How much you’ve saved for a deposit (and whether you can show that you’ve done the hard yards in saving this yourself)

It can help to have as much of the above information ready before you jump on the phone.