How to pay less for your home

Buying a house can cost a lot of money - and that has consequences. It's the reason that a lot of us are working so hard, working at jobs we hate or working into old age. (Remember Linda?). It's because we need the cash.

One way to pay less for a home is to look around for a better home loan. The ABC's finance expert Alan Kohler recently illustrated how similar the home loan rates are at Australia's "big four" banks. I added the green square after doing some research.

My research

The rates shown on the TV are called standard variable rates (more on that later). I checked up the rates of some alternatives to the "big four". The bracketed numbers are the comparison rate. More on that in a minute.

Bank Australia 4.82 (4.86)
Bank of Queensland 4.56 (4.69)
CUA 4.51 (4.52)
Bendigo Bank 4.43 (4.72) depending on the amount borrowed.

None of these even get to 5%. Some are almost a full percent lower than the "big four". The average home loan in Australia is $490,000. So getting a better rate could mean almost $5,000 less interest to pay each year. Over the lifetime of a loan that can add up to quite a lot of money.

Comparison rates

The comparison rates that I put in brackets include the bank's fees. A comparison rate is a good way to compare the actual costs of loans because it includes both fees and interest together in one number. For the record the rates (and comparison rates) for the big four banks are:

NAB 5.36 (5.49)
ANZ 5.36 (5.46)
CBA 5.37 (5.51)
Westpac 5.38 (5.52).

They're so much higher than the alternatives. It's a mystery why so many people stick with the big four.

Basic variable v Standard variable

The rates we've looked at so far are "standard variable" rates. Sometimes you will see even lower "basic variable" loan. These can look good, but can sometimes cost you more.

They usually don't have features like an offset account. Saving up some money in an offset account can be a great way to reduce interest charges.

Depending on your particular situation the ability to put extra money in the offset account may save you more interest than the lower interest rate of a basic variable loan.

In summary

Shop around. There are far better home loan options than Australia's big four banks - as The Checkout explains:

PS. My comments here are general observations and are not intended as individual advice. Please take your own circumstances into account and perhaps consult an expert.

Comments

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