Alan Hartstein
Beth Buczynski
Whether buying a house or refinancing, knowing how to choose the right mortgage lender is important. Finding the best lender for you can be a painstaking task.
To simplify the process, start with as clear an idea as possible of your lending priorities — a competitive rate or a well-known brand, for example — and the type of home loan you need.
» MORE: Can I negotiate my home loan interest rate?
Comparing types of mortgage lenders
There are many types of mortgage lenders out there, in physical offices and online, so you are definitely spoilt for choice these days. Common types of lenders consist of:
- major banks
- customer-owned banks
- private mortgage lenders
- online-only/digital banks
- fintech companies.
Going with a major bank, possibly the one you’ve dealt with since you were a kid, may have its advantages as far as continuity goes, but it might not always be the best or most affordable option. In many cases, it pays to compare mortgage offers from multiple types of lenders before deciding which is best for your needs.
Start with your priorities
Before you start wading through everything on offer, the best strategy may be to compile a list of what you want, including:
- how long you want the term to run for
- fixed or variable interest rate
- repayment options
- a redraw or offset facility
Knowing the right questions to ask a prospective lender will also help you choose the best one.
You may also want to talk to a mortgage broker who might have special insights into what it is you’re looking for and how to match you up with the best available lender.
Assessing rates and fees
Interest rates impact the total cost of your home loan, so it’s common to want the lowest mortgage rate possible.
When comparing rates, be mindful of the fact that the mortgage with the lowest rate is not automatically the best one — it may contain any number of fees, or terms and conditions that could leave you behind in the long run.
It’s often prudent to get a mortgage professional, such as a solicitor or mortgage broker, to go over the mortgage fine print for you, especially if you’re taking out a fixed-rate mortgage for the first five years of the loan or for a shorter period. These mortgages revert to variable rates that are often much higher than the standard rate and may also contain restrictions on how much of the principal you can pay off by making extra repayments.
You may opt to go for one of the so-called online-only neobanks that have recently set up shop in Australia. These lenders promise faster application processing times and may require less documentation than traditional lenders. They also promise highly competitive interest rates, fees and charges.
The flipside, however, is that these online-only lenders may lack the type of personalised customer service you may otherwise rely on during the course of your mortgage journey. There may also be a lack of reliable feedback and reviews from existing customers.
Repayment options
A reputable lender should be able to provide repayment options that are straightforward and as painless as possible while simultaneously offering redraw, offset or line-of-credit options where you can easily access the amounts you have paid off above the minimum in case of emergencies or simply changed financial circumstances.
Ideally your mortgage lender should be able to offer you a plan of action if something unforeseen does arise and you’re unable to make your minimum repayments. They may also be able to recommend the appropriate insurance products for such eventualities.
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