There’s more to a home loan than just the price tag. That’s why borrowers should aim to find the most suitable loan rather than the loan with the lowest interest rate.
That’s not to say the interest rate isn’t important – it is. But rate is just one of several things that borrowers should consider when researching home loan options.
This was one of the themes that emerged from a recent research report from ASIC (financial services regulator), called Looking for a mortgage: Consumer experiences and expectations in getting a home loan.
Initially, borrowers tend to focus on “getting the ‘best’ or a ‘low’ interest rate”, ASIC found, after interviewing more than 2,000 Australians.
However, ASIC also discovered that “as consumers progressed along the home loan journey, the importance of finding a good rate seemed to decrease for some consumers”.
Six other things to consider when looking for the best mortgage
In other words, the more time you spend researching mortgages, the more you realise that price isn’t everything.
All things being equal, a home loan with a lower rate is better than a home loan with a higher rate – but all things are rarely equal.
That’s why you should also look at six other things when comparing home loans.
Lending criteria
Some borrowers won’t be able to qualify for some home loans, depending on their individual circumstances and the provider’s lending criteria.
A higher-rate mortgage for which you can qualify is more suitable than a lower-rate mortgage for which you can’t.
This partly explains ASIC’s finding about borrowers becoming less focused on interest rates as their home loan journey progresses.
Fees
A home loan with a higher rate but lower fees might cost less over the long run than a home loan with a lower rate but higher fees.
For example, in the hypothetical example below, the mortgage with the higher interest rate turns out to be less costly over the 30-year loan term than the mortgage with the lower rate.
| Loan | Interest rate | Annual fee | Total cost |
| $500,000 | 3.25% | $395 | $802,076 |
| $500,000 | 3.40% | $0 | $798,266 |
Comparison rate
The comparison rate generally provides a better indication of the total cost of a home loan than the advertised rate.
A loan with a higher advertised rate but a lower comparison rate should cost less over the long run than a loan with a lower advertised rate but a higher comparison rate.
Flexibility
Some home loans come with helpful features such as offset accounts, redraw facilities and the ability to make extra repayments. Others don’t.
A loan with a higher rate and more helpful features might be easier to manage than a loan with a lower rate and fewer features.
Speed
There are times when borrowers don’t just need a mortgage, they need it fast.
On those occasions, a lender that charges a higher rate but provides faster processing might be more suitable than a lender that charges a lower rate but provides slower processing.
Customer service
Getting a home loan can sometimes be a confusing and frustrating experience.
That’s why a lender that charges a higher rate but holds your hand through the application process might be a better fit than a lender that charges a lower rate but leaves you to your own devices.