Great home loan deals do exist

Paul Clitheroe is a founding director of financial planning firm ipac, Chairman of the Australian Government Financial Literacy Board and chief commentator for Money Magazine.

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IN today’s tight mortgage market, home buyers can tap into some good deals on home loans.

Until the end of June for instance, National Australia Bank's online arm UBank, is offering a home loan rate of 6.59% with no application or ongoing fees. That’s more than 1% cheaper than NAB’s standard variable loan rate of 7.67%.

The catch is that UBank’s offer is only available to existing home owners looking to refinance, so it won’t help first home buyers. Applications can only be made online at www.ubank.com.au.

UBank’s offer comes hot on the heels of the Commonwealth Bank’s new ‘No Fee’ mortgage charging a rate of 7.24%, about half a percent below the CBA’s standard variable rate of 7.81%. It may not be the cheapest rate around but the No Fee home loan charges no annual fees, no monthly fees and no exit fees.

ING Direct has just trimmed the rate on its Orange Advantage offset home loan, bringing the rate down to 6.99% for borrowers with a mortgage between $300,000 and $500,000.
Mortgages offering a loyalty discount are also on the increase.

These loans provide rate discounts for borrowers who stick with their loan for extended periods – usually three to five years, and the interest savings can really stack up.

Financial comparison website RateCity lists nine lenders offering loyalty discounts, including Homestar Finance, Ratebusters and CUA, with Bankwest’s offer looking the most generous at this stage. Its Rate Cutter Home Loan, with an advertised standard variable interest rate of 7.3%, offers 0.8% off the rate after five years and for the remainder of the loan term.

It’s good to see borrowers rewarded with a rate cut rather than penalised with exit fees. However it’s still important to use the comparison rate when you’re shopping for a home loan. This is the average rate that will apply over the life of a loan – including loyalty discounts. When you look at the comparison rate you could find a simple, ‘no frills’, low rate loan offers better long term value.

There are plenty of other lenders – particularly among the non-banks, offering cut price home loans. As a guide, you can pay just 6.58% with Loans.com.au; 6.79% with State Custodians and 6.82% with IMB.

Irrespective of the rate you’re paying on your home loan, one of the best ways to save money is by making extra repayments.

For example, on a 25-year loan of $300,000 charging 7.0%, paying an extra $10 each week would produce long term interest savings of $20,713. That’s about the same amount you’d save if the loan interest rate was cut to 6.65% - yet it comes with none of the hassle of refinancing your loan.

That makes it worth the effort to find the extra cash to pay off your loan sooner. Even small extra payments have a big impact over time.

Paul Clitheroe is a founding director of financial planning firm ipac, Chairman of the Australian Government Financial Literacy Board and chief commentator for Money Magazine.