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4 magic tricks to win at home loans

Justin Joffe and Brett Joffe
·Contributors
·4-min read
Houses of different size with different value on stacks of coins. Concept of  property, mortgage and real estate investment.  3d illustration
Houses of different size with different value on stacks of coins. Concept of property, mortgage and real estate investment. 3d illustration

So, you’re ready to start the whole be-an-adult-and-buy-a-house thing? Good for you!

But after doing a bit of research, the dreaded fear of this-is-all-too-much-for-me starts to kick in.

The problem? 

Banks and lenders are just like magicians. But unlike pulling a rabbit out of a hat, they bamboozle you with foreign terms, difficult math and extensive terms and conditions.

But never fear. We’re here to unearth the tricks of the (home loan) trade. Think of us as the dazzling, magician’s assistant, armed with sequins and all the home loan knowledge - so you can pull your own rabbit out of a hat.

Here are four things you need to know.

1. The difference between an interest rate and comparison rate

When you take out a loan, your lender will lead with their show-stopping interest rate. Ta da!

But the interest rate on a loan is a bit like your most recent Tinder date. They look great on the surface, but in reality, they’re not great at all. Put simply, the interest rate on a loan is the catfish of the mortgage world - it just doesn’t show you the true costs.

You see, in order to compare loans and mortgage providers, you need to know the true cost of a loan - this includes the interest rate plus all fees and charges relating to the loan. And that comes in the form of a comparison rate - NOT an interest rate. Always look out for the comparison rate.

The Athena Celebrate Variable Home Loan and UBank UHomeLoan - Discount Offer actually have the same interest rate and comparison rate (in other words - their Tinder profile actually matches reality).

2. Principal & Interest

These components are the heavy-weight champs of your home loan - and both revolve around paying back your loan.

In the left corner, the Ms Trunchball of repayments, the Principal: This is the amount of money you borrow from your bank or lender.

In the right corner, we’ve got the underdog, often forgotten about, the Interest: This is the cost charged by the bank or lender for actually borrowing money.

When taking out a mortgage, you’ll usually get the choice whether to repay principal and interest (meaning you’re actually paying off the value of your house) or just pay interest by itself (which means you’re never actually paying any of the principal… and you won’t really ever own the house).

Most loans include principal and interest repayments - but products like loans.com.au Smart Booster Investor Bundle Home Loan or Athena Variable Home Loan are interest only.

3. Offset account

An offset account should not be confused with Cardi B’s husband (he’s so passionate about fffsets, he’s even made it his rapping name). But truth be told, the offset account is your secret weapon - because it is an everyday bank account that is linked to your home loan.

This means you can deposit your salary and savings into the offset account and the balance is offset against the amount owing on your home loan. As a result, you’ll only be charged interest on the difference between the total loan balance and the amount offset in the account.

Some mortgage products that have offset accounts include Macquarie’s Offset Home Loan and Tic:Toc’s Variable Home Loan.

4. Pre-approval

Finally - you’ve sorted out the right mortgage, with the right features, so now, you’ll probably want to get a pre-approval from the lender. Pre-what?!

A pre-approval is like a pinky promise with the banks, where they ‘promise’ to lend you a certain amount of money.

But like all pinky promises, there are certain loopholes. And a pre-approval doesn’t completely guarantee your loan will get approved.

It’s not a requirement in the home buying process, but it can make life easier! And it allows you to know your maximum available funds so that you can bid with confidence.

Go forth and pull that rabbit out of the hat!

Disclaimer: Flux Technologies. ABN 86 634 507 172 is an authorised representative (1283166) and a credit representative (525288) of Mozo Pty Ltd who is the holder of AFSL and ACL No 328141. Flux may be paid by product issuers for clicks on the product links in this article. If you decide to apply for a product you will be dealing directly with that provider and not with Flux. Flux recommends that you read the relevant PDS or offer documentation before taking up any financial product offer. Any product advice presented is of a general nature only, and is not to be taken as any sort of advice as it has not taken into account your personal circumstances, objectives, financial situation or needs. Check out our Financial Services and Credit Guide for more information.

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