Nila Sweeney

Welcome to the inaugural Australia's Best Value Home Loans awards. We’re delighted to announce the results of this special competition, in which we've compared more than 1,360 individual mortgage products in six categories – making this one of the most comprehensive and sophisticated reviews of mortgage products in Australia.

What makes this assessment different and relevant? First of all, we've gone beyond the traditional method of using comparison rates to measure the true costof a loan.

Comparison rates, which were touted as an effective means of comparing apples with apples, have left many consumers understandably confused and unsure of how to evaluate mortgage products. For example, just comparing rates doesn’t take into account big costs such as deferred establishment fees – the fees charged by lenders when you pay off your loan in three to five years – in the standard formula. This fee can often be thousands of dollars, making it misleading for consumers just using the rate comparison to gauge how much the home loan could truly cost them should they decide to exit before the loan term expires.

Basic comparison rate charts don't take into account these background costs but we've come up with a way to include them. Using our formula, our analysis reveals how much a given mortgage product will cost you in these three scenarios: if you held the loan for three, five or 10 years.

We've also included all the fees charged when you take out a mortgage – fees such as upfront fees, ongoing fees, deferred establishment fees and other fees charged when you exit your mortgage.

A lower rate may come with higher fees and less flexibility, as well as more risk to you.

Borrowers need to understand the bigger picture. Many lenders will say they're offering low rates but we give you a clearer picture by analysing the numbers and arriving at a more in-depth comparison.

The result is the true cost of the loan. Your Mortgage is now proud to present the best value home loans in Australia over three, five and 10 years.

This list is a great way to get started but please remember it’s a guide only, and should not be used alone when choosing your loan product. Rates and features are subject to change.

The awards
To be eligible for the awards, products had to be available in two or more states or territories of Australia. For the purposes of the awards, mortgage lenders were divided into two groups:
• Banks
• Non-banks

Product categories
Your Mortgage examined products in these major loan categories:
• Best value standard variable loan
• Best value basic variable loan
• Best value 3-year fixed rate loan
• Best value introductory loan
• Best value line of credit
• Best value low-doc loan

Interest rates
The rates listed in the Awards tables were taken from our database as at 21 October 2008. Please remember that rates have moved again since the survey was conducted. As we've seen recently, lenders have been slashing their rates in both the variable and fixed rate categories, even without the movement of the Reserve Bank of Australia cash rate.

Loan criteria
All Best Value Home Loans awards are conferred on residential mortgages only (ie, loans for owner-occupied or residential investment houses and units) and a loan must be widely accessible to the general public to be eligible. Any loans of the 'professional pack' ('pro pack') type or that require a prospective borrower to belong to a particular group or organisation were ineligible.

Disclaimer
The information used to rank products according to the 'true cost' of the loan has been drawn from the Your Mortgage rates database. All information is correct as at 21 October 2008. The rates database is updated on a weekly basis and lenders are asked to submit any changes to products or features as and when they occur. Information contained in the following tables is intended as a guide only. Before taking out a mortgage product, you should do your own product comparison or consult with a qualified advisor.

Best value standard variable loans

Overall bank winner
One Direct Variable Rate

Winning features
• Low rate
• Low cost
• Flexible attributes include portability, the ability to make unrestricted extra repayments and redraw facility

One Direct has claimed the top award for Best Value Standard Variable Loan, helped by its bargain interest rate of 7.55% and low overall cost. Total upfront cost is only $60 while the ongoing fees are waived.

The only big cost you will have to take into account is the deferred establishment fee of $1,150 if you decide to pay off your loan within four years.

Despite this cost, One Direct's product still came in the cheapest, with potential savings of $7,162 to be made compared to the average loan in our books. The longer you hold on to your mortgage, the greater your savings. Over five years, you can look at saving $12,333 and an impressive $24,072 over 10 years.

On top of these potential savings, the loan also offers borrowers flexible features including free unlimited repayments as long as you don’t pay off your mortgage in four years. It also offers redraw facilities so you can access these extra funds and take as much or as little as you want when you need to. The loan is portable, so you can take it with you should you decide to sell your old property to buy a new one. Split function as well as the choice to pay weekly, fortnightly or monthly is also available.

You can borrow up to maximum of 95% LVR (loan to value ratio) with lenders mortgage insurance (LMI), and up to 60% LVR when taking the loan as a low-doc option.

Adelaide Bank's standard variable product came in second, buoyed by its competitive rate of 8.2% and relatively low total cost. Adelaide Bank only charges $275 if you refinance or pay off your mortgage in four years. This helps contribute to potential savings of $2,270 over three years and $5,972 over 10 years.

Overall non-bank winner
Pacific Mortgage Group Standard Variable Loan

Winning features
• Low rate
• Zero upfront and ongoing fees
• Free extra repayments and redraw

Multi-award winning product, the Pacific Mortgage Group's standard variable loan, again stood out far above the competition, winning the Best Value Standard Variable Loan product for a non-bank. It has an ultra low interest rate which is complemented by low fees.

The product carries no upfront fees and no ongoing fees. You will, however, have to watch for the deferred establishment fee of $2,095 if you pay off your mortgage in three years.

Despite having one of the highest exit costs of the top ranking products, Pacific’s product could still save you $3,393 over three years compared to the average loan in our database. Over five years, this saving could go up to $6,446 and over 10 years to $11,479.

The product offers flexible features such as the ability to make extra repayments by making repayments fortnightly or monthly, or by means of a lump sum. It also carries a redraw facility to enable borrowers access to any additional funds they have paid into their mortgage. 

Pacific's standard variable loan has also won the Your Mortgage annual Mortgage of the Year Award and a monthly Editor's Choice Award.

Another strong performer, State Custodian Mortgage Company's standard variable has also fared well against the competition, driven by its low interest rate and competitive fees. Potential savings range from $2,551 over three years, $4,628 over five years and $11,851 over 10 years compared to the average loan in our books.

Best value basic variable loans

Overall bank winner
St.George Bank Basic Home Loan

Winning features
• Low rate
• Low fees
• Flexible features including extra repayments, offset and split facility

St.George Bank's Basic Home Loan product took the top award for Best Value Basic Variable Loan in the bank category. As well as having one of the lowest rates, St.George also kept fees low on this product, with an exit fee of $350 compared to more than $1,000 for home loans from some other banks.

Over three years, borrowers could save $2,510 compared to the average cost of the average loan in our database. This goes up to $3,029 over five years and $5,752 over 10 years.

There some other benefits not always available with basic variable rates. Additional payments are allowed at any time, for example, and payments can be temporarily halted for a period of three to 12 months during a legitimate period of leave from the workforce.

The St.George loan is flexible in other ways but there are fees that apply. For example, increasing the size of the loan by upping the borrowed amount later on will result in a fee of $500. Interest-only repayments are also available in this product and, in that case, a redraw facility is also available.

Other fees apply if you switch from monthly repayments to weekly or fortnightly.

Features such as an offset account or splitting with a fixed rate are not available under St.George’s basic variable loan.

Coming in after St.George's first place was ANZ Bank's Simplicity Plus. Having a low interest rate of just 7.87% combined with low fees enable borrowers to save $1,350 over three years and $2,469 over five years.

Borrowers can pay the loan back early, although a fee of $860 will apply. Changing the loan term would result in a $350 fee. Redrawing is also allowed, although at a fee of $25 for each one.

Overall non-bank winner
Wizard Home Loans Rate Breaker Loan

Winning features
• Low rate
• Low fees

Wizard Home Loans' Rate Breaker emerged as the Best Value Basic Variable Loan in the non-bank category.

With a low interest rate of 7.08% and a competitive overall cost, this winner trumped its competition by a large margin.

If you're after one of the cheapest rates, Wizard has it. Don’t expect much flexibility, though. Extra payments are not allowed with this product, and neither are interest-only repayments. Payments must be made monthly.

The Wizard loan can be paid off early but a deferred establishment fee of $2,150 applies if you pay off your loan in four years.

Redraw, fixed rate and split rate are also off-limits with this loan. However, by paying $1,000, borrowers can switch to the more flexible Smart Choice Loan, or $500 to get to Wizard's Clear Value Loan.

Wizard's Rate Breaker is a multi-award winner, having won this category in the 2008 Your Mortgage annual Mortgage of the Year Awards, and has been selected in our Editor’s Choice Awards in recent months.

Following Wizard in this non-bank rankings is the MECU Limited Basic Home Loan. While Wizard has an average saving of nearly $10,000 over MECU, MECU gives more flexibility.

Flexible options with MECU include selecting from weekly, fortnightly or monthly contracted repayments.

Extra payments are also allowed without penalty. There's also a free redraw facility.

Best value 3-year fixed loans

Overall bank winner
One Direct three-year fixed rate loan

Winning features
• Low rate
• Low overall cost
• Free additional repayments of up to $10,000 a year

One Direct's three-year fixed rate loan took the best value title due to its low rates and equally low total costs.

Its interest rate of just 7.09% – which reverts to a standard variable rate of 7.55% – is the lowest of the top ranking bank products in our list. The product attracts a low $60 upfront cost and charges zero ongoing fees.

One thing to watch, though, is the hefty exit fee of $1,150 if you pay off your mortgage in four years. After that, it will only cost you $150 to exit the loan.

Despite the large fee you will have to hand over if you pay off your loan early, you still stand to save a bundle with this product compared to the average loan in our books. Our analysis showed that borrowers can potentially save $2,101 over three years, $3,947 over five years and $7,312 over 10 years.

The product allows you to pay up to $10,000 extra a year for free. Any amount of top of this may attract an additional fee. You can also access these extra funds via redraw after the fixed rate period has ended. You may also choose to split the loan into fixed and variable components to hedge your bets against rising rates and take advantage of falling rates.

The loan is also portable so you can request to keep your loan if you decide to offload your current property and buy another one. You can borrow up to 95% LVR with lenders mortgage insurance and can opt to pay interest-only for up to 10 years.

ANZ's three-year fixed rate loan was a close second thanks to its competitive interest rate and reasonable fees. Borrowers can potentially save $1,461 after three years compared to the average loan in our database.

Overall non-bank winner
Newcastle Permanent three-year fixed rate

Winning features
• Low rate
• Low total cost
• Free extra repayments up to $25,000 per year

A low interest rate combined with competitive costs resulted in Newcastle Permanent’s product receiving the coveted title of Best Value 3-Year Fixed Rate Loan in the non-bank category.

With an eye-catchingly low interest rate of 6.99%, which reverts to a competitive 8.24% after the three-year period, this loan is attractive to borrowers wanting to make substantial savings on their mortgages compared to the average loan in our books.

The product carries a $300 upfront cost, zero ongoing fees and a $600 fee if you pay out your loan in the first four years. These components result in a potential saving of $7,295 over three years compared to the average loan in our books. Over five years, the saving climbs to $9,896, and over 10 years you stand to save $18,411.

In addition to these massive savings, Newcastle Permanent’s three-year fixed rate also offers flexible features such as the ability to make extra repayments up to $25,000 per year without penalty and the ability to combine the loan with other types of mortgages offered by Newcastle Permanent. You can also opt to keep your existing loan should you decide to sell your property and buy another. You can borrow up to 100% of the value of the property if it’s an owner-occupied home loan and up to 97% LVR if the loan is for investment purposes.

Redraw facility is also available once the fixed term ends and the loan reverts to a variable rate loan. You can split the loan and you can choose to pay interest-only for up to 10 years.

RAMS' three-year fixed rate loan also performed strongly, boosted by its low rates and low overall cost, taking it to second place. However, its exit fee of $1,450 made it slightly more expensive than Newcastle Permanent’s product. Despite this, the loan still offers potential savings of $3,695 over three years and up to $16,971 over 10 years compared to the average loan product in our database.

Best value introductory loans

Overall bank winner
Commonwealth Bank 3-year Special Economiser

Winning features
• Low fees
• Three-year introductory period
• Extra repayments, redraw and portability

Combining low fees, low rates and a longer period of time, Commonwealth Bank of Australia’s (CBA) 3-year Special Economiser loan wins the Best Value Introductory Loan from a bank.

While the Special Economiser loan doesn’t have the lowest introductory rate, it does have one of the longest introductory periods, at 36 months, followed by a default interest rate of 8.02%, which trounces the competition. It also has no ongoing fees. Those factors make all the difference to overall cost.

The Special Economiser saves borrowers an average of $2,167 over three years compared to the cost of the average loan in our database. Over five years, this jumps to $4,367 and, over 10 years, $9,544.

In addition, it offers some flexibility, including unlimited redraws and extra repayments. Redraw is available for a fee of just $5 per transaction. Payments can be made weekly, fortnightly or monthly at no additional cost. Borrowers can also make extra payments but the exit fee for paying the loan off in under three years is $1,000.

It's portable, meaning you can take the loan with you when you decide to sell your property and buy a new one – saving you the hassle of applying for a new mortgage.

Coming behind the Economiser is another CBA product – the Colonial-branded Basic Variable 3 Year Special Rate Saver Home Loan.

A key difference in this second CBA product is a slightly larger upfront fee and an ongoing fee. Colonial’s product has an upfront fee of $600 and ongoing monthly fee of $8, compared to $100 and $0 respectively for the Economiser. There is a lower exit fee than for the Economiser if paid off in three years, though – $850.

In the bigger picture, that means Colonial's product is about $1,000 more over the average of three, five and 10 years, compared to the Economiser.

The top two loans are similar in features, including the 36-month introductory period, introductory rate of 7.85% and default interest rate of 8.02%.

Overall non-bank winner
Resi Mortgage Corporation Resi LowStart

Winning features
• Low introductory and default
interest rates
• No ongoing fees, low upfront fees
• Extra repayments, free redraw and interest-only option

Resi's LowStart loan came out in front of all the non-bank introductory loans. It triumphed over the competition not only because of its low introductory rate but for its default rate that kicks in after that first year.

This results in potential savings of $3,190 over three years, $8,082 over five years and $16,154 over 10 years compared to the cost of the average loan in our database.

Resi's LowStart has an introductory rate of 7.04% over 12 months, well below most of the bank and other non-bank competition. It’s the later cost, at a default rate of 7.84%, which helps Resi’s product rise above that of the other non-bank lenders. But Resi's LowStart loan does have some restrictions to keep in mind.

LowStart focuses on the borrower looking to get a low early rate, then hold on to the loan for more than three years. If the Resi loan is paid off in less than three years, the exit cost is $3,281, whereas after five years it's $275.

Flexible features include no ongoing fees, extra repayments, free redraw, an interest-only option and loan portability. Mortgage insurance capitalisation allows the borrower to add the cost of mortgage insurance to the loan rather than pay upfront. Resi's LowStart doesn’t allow splitting or any fixing of the rate and it isn't available for home construction.

Ranking second of all non-bank lenders in the introductory loan category is the RAMS Home Loans Rate Relief product. This one-year introductory rate product, like LowStart, has a higher fee if the loan is paid off in less than three years – $3,295. RAMS’ best performance is seen over 10 years, when it could potentially save you $11,515.

The Nationwide Mortgage New Start Home Loan came in third. It can save you the most in true cost – $4,506 – over three years, but its lead in savings doesn’t hold over the five- or 10-year periods. One of its advantages is its much lower exit fees should the loan be paid off earlier than the original term. The exit fee is $295 for the three, five and 10 years.

New Start also offers a range of flexible features, including splitting, 100% offset accounts, a fixed option, extra repayments, weekly to monthly repayment frequency, and portability.

Best value line of credit loans

Overall bank winner
One Direct Equity Loan

Winning features
• Low rate
• Low overall cost
• Flexible features including free extra repayments, redraw and portability

One Direct's Equity Loan smashed the competition, winning the Best Value Line of Credit Loan in the bank category in this special competition.

One Direct's product scored well, thanks to its ultra low interest rate of just 7.74% at the time of the survey. It has no ongoing fees and only attracts a $60 upfront cost. If you refinance or pay off your loan within four years, you will be charged $1,150. However, this will drop to just $150 if you decide to exit the loan after four years.

Notwithstanding these hefty exit costs, you can still save $6,174 over three years compared to the average line of credit product in our database. Over five years, the savings will almost double to $11,138. After 10 years, you are looking at saving $21,699 compared to the average loan on our books.

On top of having cheap rates and a low upfront cost, One Direct’s Equity Loan is laden with flexible features including unlimited redraw, extra repayments in the pre-approved limit, and the ability to split the loan.

The loan is also portable so you can take it with you if you decide to sell your property and buy another – saving you the hassle of applying for a new mortgage.

Borrowers can take up to 90% LVR with lenders mortgage insurance, and keep the loan as long as they wish.

NAB's home equity line of credit has also scored well, taking the second place in the bank category. NAB's competitive interest rate of 8.04% combined with its equally competitive total cost could save borrowers $2,944 over three years and up to $11,859 over 10 years. NAB's line of credit product has also won our Editor's Choice for Best Value Line of Credit, and its category in our prestigious Mortgage of the Year Awards for 2008.

Overall non-bank winner
Pacific Mortgage Group Line of Credit

Winning features
• Low rate
• No upfront and ongoing fees
• All-in-one, portability and the ability to combine with other loans

Pacific Mortgage Group's Line of Credit has emerged as the overall winner in the non-bank category, thanks to its low interest rate of just 7.69% – the lowest among the top-ranking products in the non-bank list. Another strong feature of the product is its zero upfront fees and ongoing fees. However, please note that refinancing your loan or paying it off in three years will attract a $2,095 deferred establishment fee. If you pay off your mortgage after three years, this fee will drop to $295.

Despite this massive exit cost, Pacific's Line of Credit (LOC) still offers potential savings of $4,703 over three years compared to the average loan in our database. The savings jump to $9,123 over five years and $16,866 over 10 years.

The main draw of Pacific's LOC product is its low rate and low fees. However, the product is also bursting with bells and whistles such as a convenient all-in-one facility, which allows you to deposit all your salary into the LOC account. It can be combined with other products and can be accessed by cheque, phone, direct credit and nil interest Visa card.

It also allows salary crediting, free transactions and maximum loan to value ratio of 95% with lenders mortgage insurance for a minimum of five years and a maximum of 30 years.

Pacific's Line of Credit product has won our annual Mortgage of the Year Awards as well as our Editor’s Choice best value LOC in previous months.

Bankstown City Credit Union and State Custodian have also put on a strong showing, ranking second and third respectively.

Best value low-doc loans

Overall bank winner
ING Lo Doc Standard Variable Rate

Winning features
• Low rate
• Competitive cost
• Flexible features including redraw and extra repayments

The Best Value Low-Doc Loan in the bank category goes to ING Lo Doc standard variable Having the lowest interest rate, just 8.54%, of the top ranking bank products as well as having competitive fees has helped the ING product win this award. The product has topped all three categories: three years, five years and 10 years.

The loan attracts a $719 upfront cost and no monthly, annual or transaction fees. If you refinance or pay off your mortgage within four years, you’ll be charged $600 to exit the loan. Notwithstanding this significant exit cost, borrowers are still able to save $1,722 over three years compared to the average cost of the average loan in our database. Over five years, the savings go up to $3,316 and, over 10 years, $6,540.

Borrowers can take up to 80% LVR with lenders mortgage insurance and can take advantage of the flexible features the loan carries. The loan offers redraw facilities and the ability to make extra repayments.

Suncorp Standard Variable Lo Doc also performed well, coming in a close second thanks to its competitive rate and total cost. Total upfront cost is set at $600 and ongoing fees at $10 per month. If you pay off the loan in four years, the deferred establishment fee would cost you $1,680. Despite this, customers can still make potential savings of $2,580 over five years against the average cost of the average loan in our books, and $4,948 over 10 years.

Overall non-bank winner
Morgan Brooks DIRECT Equity Access Low Doc

Winning features
• Low introductory and default
interest rates
• No ongoing fees, low upfront fees
• Flexible features such as extra repayments, free redraw and portability

Morgan Brooks' DIRECT Equity Access Low Doc loan saves borrowers an average of $2,591 over three years, $4,860 over five years and $11,244 over 10 years, compared to the average of other non-bank lenders. Its interest rate of 7.95% is one of the lowest for low-doc loans among non-bank lenders. But there is more to the Morgan Brooks product – it also has no ongoing fees, and upfront costs that total just $435. Few other non-bank lenders can match these numbers for low-doc loans, and no other non-bank lender performs as well in fees and rates combined.

Low-doc loans from Morgan Brooks can range up to $1,000,000 per security, and 80% of the property valuation or purchase price (whichever is less). This loan can also be used for vacant land or home construction.

Flexible options include free and unlimited redraws, extra repayments, interest-only payments, and interest rate options of either fixed, variable or split. In variable rate mode, extra repayments are allowed at any time without penalty.

A close second to the Morgan Brooks loan is the MyRate Lo Doc Loan, for borrowing under $600,000. MyRate requires no upfront fees or ongoing fees with its product. The difference is mainly in its slightly higher rate – 8.10%.

Over three years, MyRate ranks best, saving $2,660 over the average of other non-banks.

Features included are splitting, portability, unlimited redraws and additional payments. The only condition for repayments is that, if they exceed $10,000 in one year and you have a fixed rate, a break fee may apply.

 

It can be confusing to know whether to get a variable rate or fixed rate mortgage, and what features are important. That's why it's important to not only check the right rates, but make sure that you're getting the right features in your home loan. Get help choosing the right home loan