Why your parents' advice on home loans could be out of date

Once upon a time, when we wanted our first home loan, our parents would have told us to see their longstanding bank manager, who knew the family.

Thirty years ago, our parents stuck with one bank, demonstrating loyalty through savings to get a home loan.

However, in recent decades competition and financial market changes have radically transformed Australia’s home loan market.

Today’s aspiring borrowers face a virtual avalanche of home loan product types, rates, features and fees from diverse lenders, with a swathe of advertising and information across all media and platforms.

It’s little wonder that our parents’ advice on securing home loans may need an update.

The days of sticking to one bank to get your home loan have long gone, says Bendigo Bank mobile relationship manager Kim Edwards. What is important today is for your lender to genuinely understand your personal goals, lifestyle, requirements and ability to pay off a loan.

“We take the time to fully understand our customers so we can carefully match the home loan product to their needs. We ensure they get the best rate and can service their loan efficiently and comfortably.”

Another significant Bendigo difference, Edwards says, is helping clients understand how loans can work most effectively for them.

“We make sure our customers understand how their loan to (property) value ratio – their LVR – influences their borrowing and how they need to review their loan regularly to ensure their loan reflects their current LVR.

“If you have had your loan for two or three years, your LVR will likely change. You will have paid down part of the loan, and your property value may have increased, changing your ratio. Your new LVR may put you into a different tier of borrowing with better rates.”

Mortgage broker Josh Corley, general manager of Brisbane-based firm The Brokerage, says brokers work hard to keep up with the enormous range of home loan products on offer from the diversity of lenders operating in the home loan market.

“We network with representatives from the home loan industry and use specialist software to ensure we have the latest rates and information on loans.”

Corley says lenders have different offers and priorities, assigning loans to lending tiers depending on an applicant’s LVR, ability to service a loan or the size of their loan.

“Some will offer better interest rates for larger loans or lower loan-to-value and debt-to-income ratios. Some offer bonuses such as cash backs or flight points for people switching home loans from another institution.”

In addition, only some lenders can offer eligible clients the opportunity to participate in government schemes such as the home loan guarantee, which allows borrowers to have as little as a five per cent deposit.

Jaclyn Fellows bought her first home last September and has since enjoyed the certainty, space and freedom of home ownership. While she had banked with Bendigo, she says she researched the broader home loan market before deciding it would be the right fit for her.

“Doing your research online can be daunting – you can end up going down a rabbit hole trying to understand the products on offer,” Jaclyn says.

“I did a fair bit of research, but I also admitted that I didn’t know everything, and I didn’t fully understand how everything would work [with a loan].”

Fellows says she based her decision on the visibility offered by the bank and the ability to have open, honest and transparent conversations about how loans worked and how she could make a loan work for her.

“It was really important to me to be able to pick up the phone and have a conversation or to meet in person rather than just transacting online.”

Fellows says her experience with her first loan has given her the confidence to think about the next step; she is already considering unlocking the equity she has created in her first property to purchase another.