Your home is your castle, and your home loan is probably one of the biggest single investments you’ll ever make. Getting it right is a pretty big deal.
Whether you’re a first time buyer, refinancing your existing home loan, or an investor, making mistakes with your home loan can set you back both financially and personally. Bad decisions can cost you into the hundreds of thousands of dollars, not to mention a huge amount of stress and heartache.
So how can you make your home ownership journey a positive and rewarding one? At Nano, we’re all about home loan experiences that work for you. Let’s take a look at six common home loan mistakes and how to avoid them.
1. Not Reviewing Your Home Loan
For most people, the home is the exciting part — the loan — not so much. It is easy to ignore your home loan and just let it tick over in the background when things are going steady.
We are living through challenging times and things can change quickly. Don’t wait until a major life event or a massive change in your circumstances occurs to review your home loan, as this can really limit your options.
Reviewing your home loan at regular intervals gives you a chance to look for better rates or restructure your loan to help you pay it off faster or to make other investments.
Always try to plan ahead and invest your time in exploring your home loan options sooner rather than later — it could be the best investment you ever make.
2. Getting Stung With Fees
Account fees, application fees, overdraft fees, maintenance fees, early exit fees (yes, that’s right, you can get charged for paying off your home loan off faster), and fees for having an offset or redraw facility. If there’s one thing some banks love — it’s FEES!
Paying fees to the lender may mean less money in your pocket and a longer path to reach your financial goals. The good news is, you don’t have to get stung by these nasty little surprises. At Nano, we like to do things differently. We’ve created a home loan that is fast, clear and simple, and will never charge you a Nano fee so you can pay your loan down faster.
Our home loans come with an “offset sub account”. This facility reduces the interest charged on your loan. It has zero fees (you read that right), instant access to your funds, transaction capability, and can be connected to a Nano Visa debit card to make local and international transactions
We’re not exaggerating when we say it’s amongst the most flexible offset sub accounts in the Australian market.
3. Wasting Money on Financial Products You Don’t Need
Ever walked into IKEA for a new table and came out with 18 other things you didn’t need? The same thing can happen with financial products, and commonly does. Some lenders encourage customers to set up many products across multiple accounts, some of which charge fees, or get bundled into packages that charge fees. Sound familiar?
For example, you might have multiple savings accounts earning much lower rates of interest than you pay on your home loan rate. Or you might have a transaction account with a big rolling balance that pays no interest at all. And one that thousands can relate to — you might have several credit cards with very high interest rates that you will be charged if you ever miss a full repayment.
We’ll let you in on a secret: It may not be necessary to hold multiple products and accounts. This often complicates things and you end up paying more in fees. It may also make it really hard for you to keep track of whether you’re getting ahead or not.
At Nano, you have the option to consolidate the management of your finances into one place where you can manage things simply. Every dollar in your offset sub-account goes towards reducing the interest you pay and the time it takes to pay down your home loan, so you can get ahead faster.
Centralising all your funds into one account can help to maximise the amount you can offset against your home loan. This ultimately reduces the interest you pay and the fees. Helping you to get ahead faster.
You will also be able to use our vaults feature (coming very soon), which lets you segment your money in a way that makes sense for you. This means, you can work towards multiple saving goals, whilst still ensuring every dollar in your account is being put to work for you and reducing the interest you pay on your loan. Yes, it’s that simple.
4. Paying High Home Loan Rates
You’ve probably spent hours punching numbers into a home loan calculator to find the best home loan rate, and you might be feeling a bit bamboozled. We don’t blame you.
Thanks to a global pandemic and other economic pressures, interest rates in Australia have dropped to an all-time-low. Great news for home buyers, right? Yes, but not all banks are passing these low rates on their customers. There are still some banks and lenders charging customers in the form of higher home loan rates and added fees. We think that’s a bit cheeky.
What’s the difference between the interest rate and the comparison rate?
This is a good opportunity to take a closer look at the difference between a home loan interest rate and the comparison rate. Put simply, the interest rate is the percentage of interest you will pay on your loan. For example, if you take out a loan for $500,000 and the interest rate is 2.75% p.a., the interest you will pay in the first year is around $13,750.
Straight forward, right? Sort of…
The interest rate doesn’t take into account all of the costs including things like account fees and known changes in the rate (e.g. the increased rate you’re charged at the end of a honeymoon period). The comparison rate is there to give customers a clearer picture of the full costs associated with their home loan.
So, why all the extra costs? Some lenders have long-winded home loan application processes that involve a lot of human intervention and they pass the cost of this onto their customers in the form of fees and higher rates. We think this is unnecessarily complicated and expensive.
We are a digital lender, so we are able to reduce a lot of unnecessary costs and time from our home loan process. This means we can share these savings with our customers in the form of great rates, and no Nano fees.
Our rates are simple, transparent, rewarding and fair. We keep things simple so you can make an informed decision that is best for you.
5. Falling for Gimmicks
Shopping around for a home loan or home loan refinancing can make your head spin. Lenders may try to entice you with all sorts of seemingly irresistible offers. But are they too good to be true? We hate to be the bearers of bad news but the answer is almost always: YES.
You’ve probably heard of gimmicks like “honeymoon” rates, which seem appealing in the short term, but mean you end up paying more in the long term. This is why it’s so important to check the comparison rate, which includes all the hidden fees and charges.
Also, be cautious of fixed rates and split loans with a portion on fixed. As soon as you fix even a portion of your loan with a bank or lender, this will often lead to your entire home loan balance being tied to that specific bank or lender. Why? Because the lender that captured you on a fixed rate initially (full or split) may have and retain the first charge over your home. Most lenders are unable and/or unwilling to offer a home loan relying on a second charge.
Whenever you are shopping around, consider the structure of your home loan. Always look at the comparison rate and check the exit clauses to make sure they are not overly punitive. At Nano, our rates and exit clauses will always be simple, transparent and fair.
6. Not Getting the Right Features
We don’t mean to freak you out, but choosing a standard home loan with no additional features just because it has a slightly lower upfront “honeymoon” rate could cost you a serious amount of money.
One feature that can make a huge difference to your home loan experience is a 100% offset or redraw facility. This allows you to put your regular salary and any savings you have into an account that instantly reduces the interest you pay. Clever, huh?
This feature can drastically reduce the interest you pay on your home loan and help you to pay it down much faster. This could fast track your path to becoming debt free, or bring you closer to buying an investment property or upgrading the home you live in. Either way, an offset or redraw facility will get you where you want to go, faster.
Make Smart Home Loan Choices
It’s no accident that finding the best home loan can feel like hard work. Many banks and lenders profit from keeping their customers in a constant state of confusion. At Nano, our home loan product is simple. It gives you access to great features that help you reach your goals faster. Find out how we can help you today.
Jack Derwin, 2019, ‘The big four banks have taken nearly $4 billion from Australians in just 3 years by keeping rate cuts to themselves’, Business Insider, https://www.businessinsider.com.au/the-big-four-banks-have-taken-nearly-4-billion-from-australians-in-just-3-years-by-keeping-rate-cuts-to-themselves-2019-7
Justine Davies, 2017, ‘Home Loan Fees You Should Know About’, Canstar, https://www.canstar.com.au/home-loans/home-loan-fees-you-should-know-about/