Looking for a home loan? What to consider beyond the interest rate

If you’re in the market for a home in 2024, interest rates are likely top of mind.

With the cash rate at a 12-year high, many home owners are feeling the pinch of increasingly higher mortgage repayments.

“The increase in the cost of living and interest rates can feel stressful and isolating, even though so many Australians are in the same boat,” says Bankwest Proprietary Home Lending executive manager Stephen Harper.

In this environment it can be tempting to choose the loan with the lowest interest rate, but it’s not the only thing you should consider.

“The thing about rates is they come and go,” says Theo Chambers, the chief executive of mortgage brokerage Shore Financial. “So finding a competitive rate is less important, in my opinion.”

To find the right loan for the long term, here are some other key factors to take into account.

Your borrowing capacity

The amount a lender may be able to lend you could be the difference between buying your dream home and missing out.

Lenders will assess things like your income, debts, savings and expenses to determine your borrowing limit, but the way this is calculated varies depending on each lender’s policies.

“One bank might say your max loan is $1.2 million, another might say $800,000,” Chambers says. “It can be a substantial difference.”

This can particularly affect people who are self-employed or receive incentives like bonuses, commission or overtime as part of their compensation, he says, so it’s worth exploring your options to find the right lender for your circumstances.

Variable, fixed or split rate

When selecting a home loan, you can choose between a variable rate, a fixed rate and a combination of the two.

Repayments on a fixed-rate loan stay the same for a set period, which can offer peace of mind for borrowers. However, you won’t benefit from any drop in interest rates during this period and there will typically be restrictions on the additional payments you can make.

The interest rate on variable rate loans, on the other hand, may go up or down depending on the market. These loans generally allow you to make extra payments towards your loan and come with features like 100 per cent offset accounts and redraw facilities.

“You can actually split your loan with a portion fixed and a portion variable,” Chambers says. “You get the peace of mind on the fixed, the flexibility of the offset account and the redraw on the variable.”

Offset and redraw features

A redraw facility and offset accounts can provide flexibility and savings, so it’s worth considering whether these features are important for you.

An offset account is a transaction account linked to your home loan. The balance of your offset account is deducted from your home loan before interest is calculated, so keeping any savings here can reduce the amount of interest you pay on your loan over time.

Making extra payments on your home loan also reduces the amount of interest you pay, and a redraw facility allows you to access these additional payments as needed.

While both are common elements of variable-interest-rate loans, some lenders may attach fees or conditions, so be sure to read the fine print.

Some lenders also have apps and digital tools that make it easy to manage these features. The Bankwest App, for example, allows you to quickly set up single or joint offset accounts and to redraw surplus funds. Plus it can send you alerts so you’ll never miss a home loan payment.

The customer experience

Buying a home and securing a home loan can be a stressful experience, so it helps to have an expert to guide you through it.

Working with a mortgage broker or choosing a lender with a good track record in customer service can make the process easier.

Bankwest has a team of home lending specialists on hand to help customers choose a loan that’s right for them and secure pre-approval so they are ready when the time comes to make an offer, with mobile lending managers who can fit around your schedule.

“To make an appointment, you can complete your details and a mobile lending manager will respond within one business day to talk about your home loan options,” Harper says. “They can meet at a time and place to suit you,” even on evenings and weekends for those with a busy nine-to-five schedule.

Awarded Money magazine’s 2023 home lender of the year award, Bankwest can also help customers with free property reports, refinancing and advice on how to save a deposit.

While the interest rate on a loan is a top consideration, taking these other factors into account will help ensure you choose the right home loan for your needs.

This article is intended to provide general information only. It does not have regard to the financial situation or needs of any reader and must not be relied upon as financial product advice. Please consider seeking financial advice before making any decision based on this information.

Bankwest is a division of the Commonwealth Bank of Australia.

Applications are subject to credit approval. Terms and conditions apply.