Why do people compare home loans?

You've probably heard the phrase 'home loan comparison' from your friends, family, or co-workers. But if you haven't had much exposure to the world of finance or home ownership, you might be unsure if it's something you need to think about too.

To keep it simple, any person looking to buy or refinance a home should be comparing home loans to make sure the agreement they're signing up for is right for them. A home loan can last up to 30 years of your life, so it makes sense that you should put the time and effort into making sure it suits your individual needs.

Let's dive into the most common reasons people might compare home loans.

By far the most common reason people compare loan offers is to find a better rate. A high interest rate can cost you tens of thousands of dollars in unnecessary interest payments over the life of your loan.

When the Reserve Bank slashes interest rates, major banks routinely prioritise new customers by cutting fixed term interest rates while letting variable rates stagnate, which puts existing customers at a disadvantage.

To ensure you're paying the lowest interest rates available, it's essential that you compare home loan rates prior to committing to a lender, or whenever you feel your current lender's interest rates are too high.

Savvy home-owners know that making short term changes like switching to lower rate lenders can save them thousands of dollars in interest in the long term.

Not all banks or lenders accommodate everyone's personal circumstances when it comes to home loans.

Some people may be in a situation where they need a special type of loan, such as a low deposit loan requiring Lenders Mortgage Insurance (LMI), or a zero-deposit application where a family member is willing to guarantee the balance.

As these types of loans can be considered higher risk than the standard 20 per cent deposit home loan, they may only be offered by a few lenders. It's critical for applicants of atypical home loans to compare the market offerings to ensure they understand all the options available to them.

A large number of home loan comparers are looking to get lower set repayments on their mortgage.

Let's say you have had a home loan for some time and you've paid off a significant amount, but you've either had a change of circumstances requiring more cash on hand in your weekly budget, or you'd simply like to enjoy the convenience of lower repayments. That means that it's the perfect time to refinance.

Refinancing their loan gives homeowners the option to extend their loan without changing the borrowed amount (resulting in lower repayments), and can also be used to shorten the life of their loan when used in conjunction with a lender's lower interest rate.

Choosing between fixed or variable mortgage payments is a decision each homeowner must make for themselves.

People who value stability may prefer fixed rate payments, which provide the peace of mind that comes with knowing exactly what their interest rate will be for the fixed term, and exactly how much their repayment will be each month.

If a borrower locks into a fixed term contract while interest rates are low, they will enjoy the lower rate even if interest rates sky-rocket. However, if interest rates dive, they will still be locked into the higher rate unless they switch lenders.

People who value flexibility may prefer variable rates, which generally allow the borrower to make higher additional payments on their home loan, while taking advantage of any cuts to interests rates over the course of the loan. Of course, this option leaves the borrower vulnerable to higher repayments if interest rates rise significantly during their contract.

If their current lender doesn't offer a competitive rate for their preferred option, people will compare other available home loans to find a lender that suits their needs.

You may know that lenders loan you money to buy a house, but are you aware of what other perks and products can be linked to your account?

People who want additional perks and products in addition to their home loan can compare different offerings across the market to find the best value product for them.

Value for you may mean simply a low interest loan, or it may mean taking advantage of a partial or full offset account, or signing up with a lender who offers a low-fee redraw facility.

Offset accounts and redraw facilities both offer an option to lower your interest payments, ultimately reducing the life of your loan, without permanently losing access to your money if you need it later on.

A home loan is no different to any other major investment in your life. If you invest in a car or an expensive pair of shoes, you would no doubt shop around and ensure you're getting the best value for the lowest price.

A new home is probably the biggest financial investment you'll ever make-ensuring you have the best value home loan is critical in ensuring your investment is a smart one.

Story sponsored by Savings.