What a greedy mob we are. Mortgage rates are bumping along the bottom yet borrowers are rushing lenders to get an even lower rate. Hey,why not?
Strictly speaking, it's more that lenders are rushing borrowers through mortgage brokers. If you're sold a cheaper loan and it suits you, there's no harm done.
But the danger is you'll be lured out of one loan into another that might prove more expensive because of the things you weren't told about. Such as fees, for example. Or the costs of exiting your mortgage turn out to be bigger than the savings of a new one.
Going through all the red-tape rigmarole of signing up for a new mortgage that leaves you worse off doesn't bear thinking about.
Still, it's possible to lop more than 1per cent off your mortgage, reversing last year's rate rises and leaving you with the lowest interest rate in living memory. Every dollar off the repayments helps, especially if you live in Sydney, where you've probably borrowed to the hilt.
All the more so for first home buyers, lured into a purchase by the first home owners grant one of the greatest government cons ever, since all it did was push up prices, leaving borrowers no better off who have taken out a honeymoon rate and are looking down the barrel of higher repayments.
Going for broke
Finding the right lender, let alone the right loan, is hard, so it's little wonder mortgage brokers are popular. Especially as they're free. Or appear to be.
Brokers get paid by the lender they sign you up with. If this sounds vaguely worrying, it's because you've heard about financial advisers who take advantage of investors by flogging them the biggest commission-paying product.
But get this. While financial advisers have to be licensed, and are regulated, mortgage brokers aren't.
Louise Sylvan of the Australian Consumers Association recently said the financial planning industry was "structurally corrupt". The same could be said for mortgage broking.
At least the big-name brokers such as Mortgage Choice and Aussie Mortgage Market insist their brokers are paid the same commission irrespective of which loan they sell. It's also the case that the banks especially the Commonwealth, which once would have nothing to do with mortgage brokers offer special deals through brokers that you can't get by walking into a branch.
Unless, that is, you know the right questions to ask.
But that doesn't mean mortgage brokers will flog you the best loan available. John Symond, of Aussie Mortgage Market, says the home-loan market offers so many choices that it may pay to speak not only to two lenders, but even to two brokers.
Even then you could miss out on the best deals, because not all lenders deal with brokers, including non-bank lenders such as the Packer-backed Wizard and the relatively small but very competitive RESI. They happen to offer, respectively, the cheapest basic loan and cheapest standard variable rate loan, something that's not in the interests of a mortgage broker to tell you.
Both claim they can offer lower rates because they're not paying commissions to brokers. Wizard's Mark Bouris calls for brokers to be licensed, accusing some of "churning" loans talking borrowers into switching lenders.
One of the most common tricks is to offer a bigger mortgage with another lender so you've got extra borrowing potential "just in case". Or to consolidate other loans. This is offering nothing for something. The broker gets commission and you pay new fees all for the privilege of having a potentially bigger mortgage.
Each week Investor lists the best deals from each lender, which is a good starting point. Our table also includes the real rate, as calculated by Cannex. This takes into account honeymoon periods, monthly fees and the like.
The real rate is known as the AAPR or average annualised percentage rate. It will be compulsory for lenders to show the AAPR in their advertising later this year. Some, such as Wizard, already do.
Fee for all
Mortgages are a minefield of hidden fees. Typical traps, according to Symond, include a $500 switching fee from a variable to a fixed rate, a $50 redraw fee, a $25 extra payment fee and a $20 per month fee to split between variable and fixed interest.
Smaller mortgage brokers may even charge a fee on top of the commission they're getting.
Don't forget the banks also charge a monthly account keeping fee, something the non-bank lenders have so far successfully avoided.
On the other hand, some things come with the application or establishment fee with banks but not with other lenders. For example, the banks don't usually charge separately for property valuations or legal expenses. Non-bank lenders do.
Sometimes the application fee is waived. But it is bound to pop up somewhere else, so keep a lookout for other expenses.
Another ploy is to build up-front fees into the loan so in effect you are borrowing more. Not all fees are payable up front, either. Sometimes there's an exit fee or an early repayment fee.
And some fees aren't measured by the AAPR, such as early termination or split loan fees.
Different strokes
These days different mortgages do different things. Most have a redraw facility that means you can take back overpayments. Paying more than the minimum repayment is a tax-free way of saving the taxman can't get you for paying less interest.
If you've got a cheque account or electronic banking link to your redraw facility, it becomes handy for paying bills too. Offset accounts and salary crediting are variations of this.
Then there are mortgages that let you split between variable and fixed rates. Some let you fix at any time with no fee.
Even fixed-rate loans can vary by more than just the interest rate being charged. Some lenders will let you make additional repayments on a fixed loan.
Other mortgages offer credit cards at home-loan rates, and lines of credit. Banks will give discounts and fee "holidays" on some of their accounts if your mortgage is with them.
Return to lender
If you're thinking of refinancing your loan to a lower rate, start at home, so to speak. Your existing lender, especially if it's a bank, can do deals, especially if it thinks your business is about to walk. And don't underestimate what you're worth to them the more debt-ridden you are, the more valuable your business. Provided, that is, you don't fall behind in the repayments.
Belonging to a professional group could save you interest of up to 0.5 per cent. Groups such as accountants, engineers and doctors have agreements with banks. If you earn more than $80,000 a year, you're eligible for the professional package with some banks.
Even if you don't get a rate cut, the least you can expect is a fee waiver somewhere. But professional packages usually have a high annual fee.
Fixed blessings
This is one of those rare occasions when you can save money by fixing almost from day one. Some two- and three-year fixed rates are below the standard variable rate of about 6.5 per cent.
The big banks have been cutting fixed rates every other week, though the best deals still come from the smaller lenders. For example, RESI is charging 5.96 per cent for two years and Super Members Home Loans 5.99 per cent for three years. On a $250,000 mortgage, that's a saving of about $90 a month.
Cannex says it's better to keep at least part of the mortgage variable so you retain some flexibility. Smarties can always fix different amounts for different terms the ultimate hedge.
If you want to fix your rate for an extra-long term, Westpac offers a 10-year rate of 7.75 per cent. Good luck.
Everyone's a winner
You need to decide whether you want all the bells and whistles of redraws, cheque accounts and credit cards. Or whether you want it to be just cheap. With RESI you can do both its variable rate is 5.85 per cent and it has almost all the features of a bank loan. What it lacks is probably more than made up for by the fact that there are no monthly fees or redraw fees. And it's $110 a month cheaper than the standard bank loan rate on a $250,000 mortgage.
Lower still is Wizard's basic 5.39 per cent. This is as cheap as chips. It doesn't have redraws and there's a penalty if you quit before four years. But you're saving more than 1 per cent in interest a year.
One of the great things about deregulation is that just about everybody is catered for. Borrowers whom the banks won't touch can often still get a loan.
A "non-conforming" home lender, of which Liberty Financial is the biggest, may have an interest rate 1 or 2 per cent higher because the lender is taking on extra risk that the banks won't touch, but at least it gives you a go.
"After a few years of making regular repayments on a non-conforming loan, traditional lenders like banks are usually willing to take back these borrowers as customers," Liberty Financial spokeswoman Helen Toy said.
Low rate works like magic
Bruce Ralls, a business support manager, is on his fourth mortgage, having moved twice between Melbourne and Sydney for work. He knows what he wants in a loan: the lowest rate possible.
"The whole time we've had houses I've never paid more than the monthly minimum," he said. And to get into the Sydney market he needed the lowest repayment he could get.
A former mortgage was a low-start loan, resulting in him owing $10,000 more when he sold than when he borrowed.
He moved to his $407,000 Cherrybrook home more than a year ago on a $260,000 mortgage after looking up the website yourmortgage.com.au and seeing that Wizard's "rate breaker" loan was the cheapest at 5.39 per cent.
The loan has a $1000 penalty if it's paid off in the first four years.
"I saved $1000 a year anyway compared with the next lowest lender so that didn't bother me," said Ralls, pictured with his 15-year-old daughter Danielle.
His monthly repayment is $1457. A standard variable bank loan would have cost $1655.
ABC of home-loan fees
Application/establishment fee Usually a non-refundable charge. Can be up to $1000.
Annual fee Some loans feature charges of up to $300 per annum, usually professional packages offered by banks.
Brokerage fee Sometimes charged by mortgage brokers.
Early termination fee It can be up to $1000. The average mortgage is held for only seven years.
Fixing fee Some lenders charge a fee to fix all or some of your mortgage after settlement. Can be up to $300.
Legal fee In addition to your own legal fees the lender's fee can be $250 to $500.
Loan servicing fee Monthly fee of up to $10 charged by banks.
Management fee Another name for the loan servicing fee. Also called processing or maintenance fee.
Mortgage insurance For the lender's benefit.
Penalty fee Charged for quitting a honeymoon or fixed-term loan early.
Redraw fee Some lenders charge up to $50 for each withdrawal.
Split loan fee Charged for having a mixed variable and fixed-rate loan. Can be up to $600.
Valuation fee This is what the lender is charged for valuing your property but often you have to pay for it.
Each week financial advisor Noel Whittaker answers your
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