Money musings, financial commentary plus the rambling wit and
wisdom of the team from Mozo - Australia's money info zone
Thinking of buying that dream home this year? What about annihilating your debt for good? Don’t rely on luck to stay on top of your money matters. Read our fun infographic to roll your way to financial health in 2012!
While the Reserve Bank this month dropped the official cash rate, fixed rate home loans have been coming down for a number of months. There are still some great opportunities for borrowers to lock in a rate that is lower than where variable rates currently sit.
Fixing is not for everyone but it provides certainty that you don’t get with variable rates. You won’t benefit from any further reductions in rates, but you’re insulated against any increases affecting your rate or repayment amount until your fixed term expires.
When it does expire you’ll have a choice of re-fixing or reverting to a variable rate.
If you don’t re-fix when your fixed term expires you will revert to a variable rate. You need to be aware that unless you’ve already been paying a yearly fee on your loan, most lenders don’t roll you on to their most competitive variable rate. More often than not, you’ll end up on their most expensive (standard variable) rate. Ouch!
It is unfair that an existing customer coming out of a fixed rate should be dumped onto a rate rarely sold to new customers. If you’re lucky, you may have an opportunity to convert to a cheaper variable product but it typically won’t happen unless you initiate the process and you may have to pay a fee to do so. Check these details before you sign up for your fixed rate loan. Ask your lender what rate you will revert to at the end of your fixed rate loan.
The Greater’s Great Rate Fixed Rate Home Loan and Ultimate Fixed Home Loan both automatically revert to rates lower than our standard variable rate (at no cost) should a borrower choose not to re-fix.
This is one of the reasons why the comparison rates on our fixed rate loans are usually much lower than our competitors, even if the headline (advertised) rate isn’t. Remember to always look at the comparison rate when choosing a loan. Mozo lists comparison rates as well as advertised rates.
David Bryde is a Mozo Answers Industry Insider and Product Manager for the winner of Mozo’s 2011 People’s Choice Award for Best Home Loan Provider, Best Saving Account Provider and Best Building Society, Greater Building Society. He also contributes to the Greater’s Blog.
Amid the ever-intensifying home loan war, the past fortnight has seen the emergence of a devilishly delightful trend in consumer banking – the no fee home loan. There are a litany of fees usually associated with getting and maintaining a home loan – application fees, annual service fees and exit fees – so, it’s worth taking a look at the financial fiends that dare strip away these fees.
UBank’s UHomeLoan for Refinancing
The one that started it all was UBank with its UHomeloan for refinancing. For those unaware of UBank’s pedigree, it’s backed by NAB and has already set the bar in the online savings account category with it’s USaver account. The question now on everyone’s lips is: can they succeed in the home loan category too?
So far the signs are good.
The initial variable rate is a low 6.99%, but after three years they offer a loyalty discount of 0.1%, taking the rate down to an amazing 6.89%. Take into account the lack of any upfront or ongoing fees and that leaves you with a knockout comparison rate of 6.92%.
There are products offered by mutuals and non-bank lenders with marginally better comparison rates, but most of those are either basic or packaged loans and don’t offer the security of being backed by an institution as big as NAB.
Additionally, the UHomeloan has no exit or transaction fees whatsoever, unlimited free redraw and the option to split as well.
There are some negatives:
- It’s all web-based, so those conditioned to bricks and mortar may be put off.
- No offset account.
- Eligibility criteria. The loan is for refinancing only and there is a maximum LVR (loan to value ratio) of 80%. It’s also unavailable if you’re self-employed.
Nonetheless, if you do fit the bill, it’s a cracking offering and one sure to garner a lot of interest in the coming months.
Commonwealth Bank No Fee Variable Rate Home Loan
A few days after the UHomeLoan launched, Commonwealth Bank unveiled its No Fee Variable Home Loan. So how does it stack up?
The rate is 7.24%, which is good, but not market-leading by any stretch. That being said, it’s still very competitive amongst the other ‘Big 4’ offerings. There are no fees and you get branch access as well as free redraw via branch and Netbank.
And for the negatives:
- There’s no option to split the loan and no card access though there is free redraw via branch and Netbank.
- The loan has a maximum LVR of 80% (if you want to avoid extra charges).
The biggest issue for Commonwealth is that the loan is currently only available to new customers. Existing customers wanting to refinance into this loan will have to wait until April 4, 2011. Surely a kick in the teeth to some of its already disgruntled clientele?
It may not hit the heights scaled by UBank, but for a Big 4 Bank, Commonwealth’s No Fee Variable rate Home Loan is a solid and reasonably attractive offering.
Mortgage House No Fee Home Loan
Mortgage House are part of the wave of non-bank specialist lenders who typically offer great value, and its new No Fee Home Loan is no exception.
The loan has a low variable rate of 7.14% (if your LVR is less than 60%) and 7.19% if between 65% and 75%. There are better priced variable loans on the market so you should compare your options but like the other two loans, there are no upfront, ongoing, transaction or exit fees and it also comes with the option to split and unlimited free redraw.
As for the minuses:
- No branch access
- No offset account
- Not available if your LVR is over 75%
So, if you’re ineligible for UBank’s loan (if you’re not refinancing for example), then this a loan that definitely warrants consideration.
Compare home loans at mozo or ask a home loan question on our new money forum, Mozo Answers!