A new home is one of the biggest purchases you will ever make, and it all starts with the right home loan. We talk to home loan expert, Peter Bosco from Pell Finance, about finding the best deal.

Is there a ‘right time’ to buy and borrow?

Typically, the ideal time to buy and borrow is when interest rates fall and housing prices improve, however, this is hard to predict and a ‘wait, watch and see’ approach is not ideal for most people and their individual circumstances. Therefore, the ‘right time’ is when you feel comfortable and ready. Purchasing a home is a huge commitment, not just financially but also emotionally, so we advise never to rush the process and to always be well informed and ask questions.

What advice do you have when choosing a bank to borrow from?

We, of course, look at the rates on offer, but also other features. Some banks do their business online, which does not appeal to some people who may want a branch with face-to-face interaction. Some banks also offer ‘no frills’ mortgages, which are good if you are perhaps younger and not interested in add-ons such as wealth management and platinum credit cards. However, ‘no frills’ loans may not be suitable for those who are more established with larger savings that could be put in an offset account.

Some banks also make the refinancing process a lot simpler, where others will reassess as if you were a new borrower. If you are self-employed, consider what additional information will be required. Some banks require years of trading history and financials, where others will be happy to lend if you have been in business for only 12 months. The role of a broker is to know these details and direct you to the best bank with the lowest rate and best features to accommodate your needs.

So, the bank with the lowest interest rate isn’t always the best option… it is tempting to choose the lowest rate, but often they are tied to a ‘no-frills’ home loan. This means there may not be an offset account. So, if you have large savings, or are expecting to receive an inheritance, you cannot use those amounts to reduce your interest repayments.

Also, if you make additional repayments, you may not be able to redraw them at a later date. For example, if you paid an additional $15,000 in repayments against your loan and later wanted to purchase a car, you will be unable to access these funds as they will be applied against your loan and inaccessible. There may also be a lack of repayment flexibility, with the loan only allowing for monthly payments when you may prefer to pay fortnightly. Some loans with a higher rate offer other features such as a personal banker, reduced insurance, reduced rate credit cards and yearly consultations with a financial planner. A holistic approach needs to be taken to ensure the best outcome.

What are some questions borrowers should ask lenders when comparing home loans?

It is important to ask about the comparison rate – this is an interest rate, but it also includes all other charges like annual fees, account keeping fees and establishment costs and is a better representation of the ‘true’ interest. For this reason, it is usually higher.

Following on, ask what other costs are involved – is there a settlement fee, an annual fee, a monthly fee? All those costs can add up over time. Always ask for a discount to the advertised rate – banks want your business and are often prepared to offer a lower rate than what they advertise, especially if you are in a good financial position with great savings history.

Ask when you can make repayments. Also ask what documents you need to provide. And, if you are self-employed, you may need to have your financial statements prepared as well as obtain a letter from your accountant.

Lastly, ask whether the loan has an offset or redraw. An offset account means any money in that account is applied against the loan and reduces interest paid. A redraw allows you to withdraw any voluntary payments you make above the minimum repayment.

Pell Finance
651 Portrush Road, Glen Osmond
1300 530 480
pell.com.au