Yahoo Finance Act now: 5 steps to find today’s best mortgage deals
Nicole lists the five steps she uses to identify today’s ‘real’ best mortgage deals.
This is part one of a two-part series on how to identify the real best mortgage deals. Look out for part two: Today’s real best mortgage deals.
It’s relatively simple to find out the best variable home loans with competitive rates, but what about the best mortgage deals available right now? How do you access this information in real-time?
The good news is there is a way to find out the best variable rate deals on the table right now, today. And they’re all authorised deposit-taking institutions (ADIs) which mean they come with a genuine (and essential) offset account.
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Here is my five-step method to find the lender with the best real-time interest rate today.
Step 1: Look at variable rates
Fixed rates can sometimes be an attractive option, but in today’s environment they are far more expensive than variable rates. So they’re only worthwhile if you think the Reserve Bank will keep hiking rates higher from here and you have a sufficient income buffer to get approval - that’s a rare combination.
The other problem with fixed rates is that they usually do not carry full offset accounts, and these are an enormously powerful debt reduction tool, especially when times are tight.
That’s because savings you hold in offset accounts are lopped off your loan balance so you pay zero interest on that amount.
Essentially, your lender lets you use every dollar twice, both for its intended purpose and to save you loan interest.
So, any savings and emergency money should go into your offset account. You could even put your whole salary in your offset account and put your expenses on your credit card with a long interest-free period. That would see you put the maximum money against your loan for the maximum amount of time.
But there’s a caveat. Only do this if you can stick to your budget and won’t overdo your spending. If you are disciplined with your debt, this is a way of using the bank’s money to pay off your loan.
Step 2: Make sure the offset is real
Most lenders now claim to carry offset accounts. They don’t.
Only loans issued – or underlied – by what are called ADIs can. These lenders are authorised to take deposits which means their offset accounts are connected, but separate to, loans.
The fake offsets by other loan outfits are all-in-one-style products which means that if you get into financial trouble, you can be refused a redraw.
A lender can even recalculate your loan balance which means if you have extra money sitting directly in the loan it is simply ‘parked’ to save your interest, your savings could instead be sucked up.
Step 3: Compare discounts with discounts
The big four banks now more openly disclose the discounts they give customers with different loan sizes and borrowing percentages.
If you have 40 per cent equity, you need to ensure you’re interrogating the market for all the deals available to you at that rate - simple.
Step 4: Check the fees
Offset accounts are not free. Larger lenders usually only offer them as part of some kind of package, for which you may be charged an annual fee of around $395.
Smaller lenders may offer offset accounts as an optional extra, costing around $10 a month which of course, works out a lot cheaper.
Be wary of compelling cashback offers, it is the interest rate and ongoing costs that will determine whether you come out in front when looking for the best mortgage deal.
But there is one sure way to capture the real cost of a loan…
Step 5: Cull your list by comparison rate
The comparison rate basically lets you skip the above step as the formula gives you the interest rate adjusted for your up-front and ongoing costs.
So that’s, finally, what you need to look at to select the loan that will get you out of debt the fastest. Because THAT’s the name of the game.
Here’s the thing. I don’t know of one comparison site that lets you do all these comparisons so you’ll need to use a few. Look at large comparison sites such as Canstar, Finder, Mozo and RateCity and find those that offer some of the above filters.
You can also quickly check whether a lender is an ADI, and so offers real offset accounts with the protection of the Australian Government Deposit Guarantee, on APRA’s list.
Or you can approach the lenders I have already identified via the above criteria: the best in the market today.
Because – besides working offset accounts like an expert – slashing your interest rate is the other guaranteed way to save on your home loan.
Come back for part two of this ‘make-like-a-broker’ mortgage series: Today’s real best mortgage deals.
Nicole Pedersen-McKinnon is the author of How to Get Mortgage-Free Like Me, available at www.nicolessmartmoney.com. Follow Nicole on Facebook, Twitter and Instagram.
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