For most first home buyers the excitement of just getting a home loan approved feels like a win, but often it means that you do not end up getting the best home loan.
Of course you might be happy enough just to get your home loan approval, as that allows you to buy your first home – probably your biggest purchase ever!
But maybe you should also make the effort to ensure that you are getting the best home loan – it’s probably your biggest financial commitment (debt) ever!
“how to choose the best home loan“
Firstly, we need to explain that home loans are not created equal – they might all appear similar but there are some home loans that are a lot better than others.
Don’t Regret Not Comparing Home Loans
As mortgage advisers we are always speaking to home owners that did not make an informed decision and then a few years later they have found out how much better off they could have been if only someone had suggested they get some advice rather than settle for what they thought was an okay home loan approval.
As mentioned, a home loan is often your biggest financial commitment (debt) and therefore even small differences can have a huge impact. Having the wrong home loan can cost you a lot more, or in other words by getting the best home loan you can save a huge amount.
Of course, your bank is never going to tell you that another banks home loan is better, and in many cases they probably don’t even know themselves. Even the banks with the best home loans are not great at explaining or advertising the fact, and so it is left to some of the best mortgage advisers to ensure that people know what makes a good home loan and then to ensure that Kiwis have access to the best loans.
We know that we cannot reach every Kiwi, and we also know that some people get really ‘pissed off’ when they learn how much they could have saved by going with a different bank and by having a better loan structure.
This is why we decided to write an article that explains how to choose the best bank home loan, and we do encourage you to share this too so more Kiwis can be better informed before they commit to a specific home loan, and before they lock in their loan structure too.
Look Out For The Simple Warning Signs!
There are always a few warning signs that make us question peoples decisions:
- You have got the mortgage approved with the bank that you already do your banking with
- You went direct to the bank and the banker seemed pretty good to deal with
- There was minimal discussion about any loan structure and the mortgage is all sitting in just one fixed loan
- You are paying the minimum repayment required
- There was no conversation about how Offset loans work and if they would be a good option for you
These are just some of the things that make us think that you have not really had much advice on what a good home loan would look like.
You might say “but I have a good interest rate” as this is what the banks advertise and encourage Kiwis to focus on. We know that it’s easy to simply compare interest rates, and that’s what the banks tend to focus on BUT maybe that is because they do not want you to focus on anything else. Maybe they do not want you to question the options and realise that they cannot offer you the best home loan.
There is also the question of what banks do not want to talk about the features of home loans that allow you to pay off your mortgage faster.
If you do pay your mortgage off more quickly then you can save a lot of money, and when you ‘save money’ on your banking it means the bank are earning less. This could be a very real reason that you will rarely hear banks speaking about how you can save money by structuring your home loan correctly.
We Often See Too Much Focus On Interest Rates
The banks and media are obsessed with interest rates and they think that everyone wants the lowest interest rate. It makes sense that we all want a competitive interest rate, and for the full term of the mortgage rather than just some ‘special’ deal to entice you to a specific bank when you first get a home loan. But what we should really be looking at is the flexibility that a home loan can offer.
There are a few different options when it comes to home loans and with most Kiwis opting to have most of their lending on the lower fixed rate options, and possibly a small amount on one of the floating rate options that mean having a higher interest rate but having more flexibility.
There are some options when it comes to floating rate loans with the standard term loan, the revolving credit facilities and some banks also offer the offset loans which have become a lot more popular as people understand how they work.
So let’s look at what makes getting the best bank for your home loan – what makes some home loans stand out from the ordinary.
What Makes The Best Home Fixed Loans
There are two main advantages of a fixed home loan:
- you get the certainty of a fixed interest rate for a selected period of time
- in New Zealand the fixed interest rates tend to be quite a lot lower than the floating rates offered.
But with the certainty comes inflexibility.
You have an interest rate that’s locked in and a set repayment, but it’s hard to change (increase) the repayments which means you’re not going to be able to pay the loans off much faster. A floating rate on the other hand gives flexibility, but no certainty and you pay more too.
Most banks do offer a bit of flexibility with the fixed loans and allow you to pay a small amount more, but very few offer much flexibility and especially if you have stretched yourself too much and need to reduce the repayments again.
Wouldn’t it be great to:
- Be able to increase your repayments by up to 20%
- Be able to reduce the repayments back to the minimum if needed
- Be able to redraw the extra money that you had paid off your loans
These are the features that make a huge difference.
If you want to pay your home loan off more quickly then you want to be able to increase your repayments by a good amount, but decrease if you find the repayments too much. It’s also good to be able to access the extra money that you have paid off your loans as that is the most efficient way to have emergency funds – where they can be accessed quickly if needed, but where you can save more than you could earn in a savings account.
Most banks will not offer you this level of control to manage your home loan the way you want.
You Need To Know About Offset Accounts
You need to know about Offset accounts – especially if you are a first home buyer and have less than 20% deposit.
Offset loans are proving to be popular for those people that know about them BUT it seems that most people have never heard about them or never had the benefits explained. We expect the reason for this is that there are only three banks that have offset accounts at the moment and so those that don’t have an offset are not going to be telling you about them.
Only BNZ, Kiwibank and Westpac have Offset accounts at this stage.
So what’s so good with an offset account?
Most people have more than one bank account and they all have some money in them, earning little if any interest and then the tax man takes a share. That means while it can be convenient to have multiple accounts it’s not the most efficient way to manage your money. That is if you do not have an offset account.
With an offset account you get to link your offset loan with all of your bank accounts, and then ‘offset’ your money against your loan and so only pay interest on the net amount. It’s one of the easiest ways to save money on your mortgage, and if you keep your repayments the same then you can pay more off your loans and build equity in your property faster.
You can read more about Offset loans here or speak to one of our advisers who can explain them in more detail.
It might mean that you are going to end up with a different bank to what you expected, but remember how important getting the best bank for your home loan really is.
Make Sure That You Are Getting Ongoing Advice
For most Kiwis your mortgage will be one of the largest financial commitments that they have, and yet often people will spend more time researching when buying a new phone or computer than they do when getting a home loan.
Get it right and you can save a lot of money, but by just going along with what you are provided and it’s highly likely that it’s costing you a lot more than it should. The banks know that most people do not seriously review their mortgages and don’t bother with getting advice and we expect they prefer it this way.
After a few years complacency sets in and they just go along with what the bank says and refix the loans as they come off fixed.
Do you really want to watch the banks announce record profits – and do it at your expense!
If you actually took the time to look at your home loans you might be amazed at what you could be saving. This is where you should be speaking with a good mortgage advise and getting some advice on what the options are for you that could give you better flexibility and help you save now and in the future.
The team at Mortgage Managers are here to help you with your home loan now and into the future.
Too often we see Kiwis with a home loan that they think is okay, but we think you deserve the best bank for your home loan.
We’ve been around for over 25-years and we plan to be around for at least another 25-years so we will be here to help you. We’re also proud to say that we are not ex-bankers and that allows us to be professional advisers without the risk of being tainted with what the banks teach.
We know what it’s like – the excitement of getting a home loan approved. It feels like a win, but we also know that it often means that you do not end up getting the best bank for your home loan.
Let’s fix that – it all starts with a discussion with a good mortgage adviser.
