8 questions to ask your mortgage lender

If you’re in the market for a new mortgage, you need to do some serious homework to figure out the best lender for you. 

They will ask a range of questions to understand your financial situation. But you should go armed with some questions of your own.

1. How much can I borrow? 

It sounds simple, but the answer can vary significantly between lenders, which each have their own lending criteria in place. 

Most lenders have tightened up their home-loan lending rules in recent years amid a tougher economy, which means there could be a hit to your borrowing capacity. 

It’s worth starting with your needs, and your lender will be able to tailor options based on different products and home-loan features. 

“If flexibility is important to you, you may choose a variable rate home loan, which you can prepay more quickly, redraw prepaid amounts as required, and even link the loan to an offset account to help you save on interest,” says Dr Michael Baumann, executive general manager home buying at Commonwealth Bank. 

Sometimes a lender will let you borrow much more than you can comfortably repay, while other lenders may be unwilling to lend you much at all. A very quick calculation is to look at your annual income, calculate 30 per cent of that figure, and divide that by 12 to get a monthly repayment amount. 

2. What is the current interest rate? 

Above all else, make sure you understand the interest rate specific to the lender you’re considering signing up with, advises Atelier Wealth mortgage broker and director Bernadette Christie-David. 

“Or, if you opted for a split loan where part of your loan is fixed and part is variable, be sure that you check the respective interest rates for each loan split and that the length of your fixed-rate term is accurate,” she says. 

“Also, verify if your loan comes with an offset account and nominate this account for your loan repayments. The date of your first repayment is also crucial to ensure you have enough funds in the right account for this first loan repayment as this detail can fly under the radar.” 

3. What are the features of the loan? 

Some lenders offer additional benefits that will let you save on day-to-day expenses. These could include discounted internet plans, fee waivers, cashback offers, offset account options and other incentives to win your business.

Make sure you understand whether these features last the lifetime of the loan, or are only an introductory offer. 

“Your lender should talk you through the features of the proposed home loan in light of your specific situation,” says NAB home lending executive Angus Blandy. “This includes the goals you want to achieve, plus any specific needs you may have, such as an offset account.” 

4. How flexible are the home-loan repayments? 

Everyone’s circumstances are different, so you want to understand what the repayments may look like for you, says Shannon McMahon, managing director of home loans at ANZ.

“It helps to get a good understanding of whether the flexibility of a variable rate or the certainty of a fixed rate suits you,” he says. “Depending on your situation, you may also be able to choose between making principal or interest payments or interest-only payments.” 

5. What other fees should I be aware of? 

You want to get a clear breakdown of the bank’s fees, including settlement costs, legal fees and annual fees for your loan, which come out when your loan settles. 

Each lender will have their own fee breakdown, so ask for a copy of this to take away and compare with other lenders, so you clearly understand what they cover. It’s also good to ask about the discharge fees, which some lenders charge when you end the loan contract. 

6. Which payment frequency works best for me? 

Make it easy on yourself by trying to line up repayments with the times when you have money coming in.

Depending on your circumstances, switching from monthly to fortnightly or weekly repayments could help reduce your total interest charges. 

7. Is there a redraw facility option? 

Another good question to ask is about ongoing options you can access once you take out your loan. 

A loan is not just for right now, it can be for up to 30 years, and a lot can change during that time. You could have a change in employment, your family might grow, or you might want to renovate or make changes to your home. 

A redraw facility is a loan feature that allows you to make extra repayments which you can access at a later date if you need cash. The extra repayments accumulated in the redraw facility are separate from your regular monthly repayments.

8. What happens if my financial situation changes? 

It doesn’t take much for your financial situation to change these days. Losing your job, starting a family or receiving an unexpected bill can affect your ability to cover the mortgage. 

“If you ever start to feel like you’re struggling to make a repayment, reach out to your bank early,” Blandy says. 

Understanding the hardship options built into the agreement from the very start is important because they can vary significantly between lenders. For example, you may be able to choose between making principal and interest payments, or interest-only repayments during a set interest-only period.

This short-term help while you get back on your feet can make all the difference, though the idea is that you will return to normal repayments after a few months. 

“It’s helpful to understand the options available to you throughout the life of your loan so that you can get in touch early, particularly so your loan is set up in a way which continues to suit your needs,” McMahon says.