Your Mortgage Should Fit You

Fit – Features, function and mobility

Ironically, fit is often the most neglected factor, yet it is likely to have the single largest impact on the length of your loan and the overall cost. The reason fit tends to be neglected is it can be a complex consideration when selecting your home loan.

Fit includes features such as rate type, repayment type, or what types of offset options are offered if any. These features may also extend to include services that replace other banking facilities. For example, offset accounts are included in some of the better basic loans at no extra cost. This account will probably replace your normal bank account, saving you between $60 and $144 per year (plus potential interest savings) over a basic loan that requires you to maintain a separate transaction account. Alternatively, packaged loans often include interest rate discounts and credit card facilities, which may be too much, just enough, or perhaps too little for what you want.

Fit also includes function, which is how you interact with the home loan and any related accounts such as offsets and credit cards. For example, whether the loan has direct salary crediting, what repayment cycles are available, whether an offset account has limitations and whether you require branch access, internet access or telephone banking access to your accounts and so on.

The final component of fit is mobility. Whilst loan portability allows you to move your loan from one property to another, mobility is a completely different consideration. Portability is offered by lenders to keep your loan with them, mobility is a measure of how heavily a lender will penalise you for leaving them in five years or less.

In one of the few statistics published on how long Australian borrowers have their mortgages before they refinance them, Infochoice estimates the average life of a mortgage to be between twenty months and just seven years. Mobility then, becomes quite important with many lenders that are not confident they can continue to keep you happy, choosing to penalise you if you choose to leave them. Although it is impossible to factor these charges into the cost when you are comparing your loan, you should keep them in the back of your mind.

As a guideline, pay close attention to Deferred Establishment Fees, early pay out fees and discharge fees that may become payable even after you have stuck it out for two years. Be very wary of lenders charging percentage based penalties after two years. These fees often look a lot smaller than they really are which is why some lenders choose to quote them this way.