A mistaken belief that all banks are the same and there is little competition in the lending market could be costing some borrowers thousands of dollars.
In fact, in the past 12 months, the differences between lenders have become quite stark and there is now a significant disparity between lenders on interest rates, fees and credit policies.
When you make comparisons between lenders, it quickly becomes clear they are not all the same. Borrowers can potentially save thousands of dollars by shopping around for a deal that better suits their needs.
One of the more significant differences between lenders relates to credit policy.
On the upper end of the scale, there are lenders requesting an LVR (Loan to Value ratio, or value of the property) of 88 per cent with a deposit of 12 per cent, compared with a lender at the other end of the scale that is requesting only a 5 per cent deposit.
If you paid a 12 per cent deposit on your dream home valued at $500,000, for example, the lender would require $60,000 - versus $25,000 if you were required to pay 5 per cent of the property's value.
Also, once the LVR is more than 80 per cent, the LMI (Lenders Mortgage Insurance) premium kicks in - and this, too, varies between lenders.
How much can be borrowed can also significantly differ between the banks.
Someone earning $60,000 per annum may only be able to borrow $250,000 with one lender compared with $300,000 if they approached another lender.
The difference between lenders on variable and fixed rates appears small, but the variation when applied to a loan warrants borrowers' attention.
The disparity between variable rates from the various lenders is roughly around a quarter of a per cent and for fixed rates it's roughly half of a per cent, depending on the term.
While this doesn't sound like much of a gap, if we look at, say, 7.79 per cent versus 7.59 per cent, for example, and apply that to a $300,000 loan, it adds up to $600 per year to the cost of servicing that loan.
Over five years, that may add up to $3000, which could fund extra loan repayments or a family holiday.
If we look at this over the life of the average 30 year loan, you could be saving approximately $14,850.
But be aware that cheaper interest rates could attract large upfront fees or a large exit fee.
It may be timely to conduct a 'home loan health check' with your Smartline personal mortgage adviser who has access to a full range of information on loans from multiple lenders across the market.
For more information visit www.smartline.com.au today.
The above information is supplied by Smartline Financial Solutions
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