There’s a variety of factors to take into account when separating the best principal and interest home loans from the rest. No two lenders are the same when it comes to their interest rates, fees or charges, so comparisons are very useful. Here are some areas to look at when you compare principal and interest home loan deals, which you can do right here with Savvy.
The type of lender you prefer
The lender you choose will shape your loan repayment experience considerably, so you should consider all the different options carefully. Choose from:
- Banks: banks (particularly the biggest ones) offer a wider range of products than other lenders, but interest rates, fees and charges may not always be the most competitive on the market.
- Credit unions: these operate very similarly to banks, but as they’re non-profit and owned by their members, they channel profits back into the credit union, which often manifests itself in lower interest rates and reduced fees.
- Online or non-bank lenders: these lenders are smaller than banks and credit unions and often offer a cheaper, specialised service to you. They’re not regulated in the same way as banks, though, and usually don’t have any physical locations.
Interest rate offered
A seemingly insignificant interest rate difference can amount to hundreds or thousands of dollars over the life of a loan. For example, a $500,000 loan paid over 30 years with a 3% interest rate will end up costing you just under $760,000. An interest rate of 2.8% could save you almost $20,000.
Home loan comparison rates are calculated based on a $150,000 loan over a 25-year loan term. A loan’s comparison rate indicates how much you’ll be paying in interest, but also in additional costs, painting a more accurate picture of the true cost of your mortgage. Lenders are legally required to display a comparison rate when advertising their loans. These rates include primary upfront and ongoing costs, as well as a revert rate if you’re signing onto a fixed rate or introductory rate loan.
Repayment terms and frequency
You get to shape the cost and affordability of your repayments in several ways. Firstly, you can choose the term over which to repay your loan, with repayment periods available up to 30 years enabling you to set your instalments at a manageable level. You can also decide on whether to pay monthly, fortnightly or weekly, depending on which suits you the most.
Additional features on offer
Lenders will often sweeten their loan deals by throwing in bonus features that can improve your repayment experience. These may include:
- Offset accounts: an offset account is a feature which allows you to reduce your principal more quickly, and therefore the interest you pay overall. You’ll be able to do this by depositing your existing funds in an account that’s linked to your mortgage, essentially serving as an interest-free contribution to your loan principal.
- Additional payments: some loans may charge you a fee to make additional payments, but if you’re able to do it for free, you can cut down your principal far more quickly.
- Redraw facilities: this feature allows you to access additional repayments you’ve made and withdraw them. It can help if you’re suddenly faced with an unexpectedly large bill or have to cover emergency costs.