The Australia Home Loan Market is extremely competitive. How does one choose the best home loan? Certainly the first thing to do is define your priorities.

Home loans come in all shapes and sizes. These days you can pretty much get any feature that you desire – but with most lenders, more features means more costs.

Here are some of the points you should consider:

Fixed Vs Variable

There is always speculation as to which way the rates are going next. Many people offer their opinion in the media, not all of these are genuine experts. Choosing to leave your home loan rate as variable or fix it is always a bit of a gamble. If the going fixed rates offered by most lenders are lower than the variable rates – this is a good indication that the future direction of interest rates is on it’s way down, and vice versa. However it is an indication only.

Do keep in mind your future intention with respect to your home loan. If you intend to pay off a large amount of the loan in the near future – fixing the full loan is probably not a good idea. Most lenders will not allow significant reduction to the loan principle during the fixed period. Likewise if you intend to sell the property or pay out your home loan fully in the immediate future – it is not a good idea to fix your rate. Most lenders will charge substantial break up fees if you refinance during the fixed period.

Honeymoon Vs Standard Variable

Honeymoon or Discount home loan rates are a marketing ploy used by lenders to attract new customers. They offer a short term rate reduction after which the customer is automatically transferred to the lender’s Standard Variable rate. Often the rate quoted is not the rate that the loan will end up costing. There are fees and charges levied by lenders on these products. There are frequently penalties imposed if you choose to refinance straight after the Honeymoon period.

Honeymoon loans are a short term rate saving but you need to read the fine print as you may end up paying out all your savings and more at the end of the Honeymoon period when you choose to refinance.

Low Doc Vs Full Doc

Low Doc Loans give you the opportunity to borrow without providing your full financials. These products were designed for people who are in business and may not have up-to-date tax returns. Most lenders charge a premium for these loan products, therefore you should not consider going low doc unless you really need to.

Applicants who are after a No Deposit loan should also be aware that such loans are not available under Low Doc programs.

Loan Portability

Loan Portability refers to your ability to transfer an existing loan to a new security. This is a good feature to have if you are intending to sell your existing home and purchase another property, A portable loan will give you the opportunity to simply substitute securities without needing to go through a full refinance process.

Quoted Rate Vs Comparison rate

It is important to understand the difference between the interest rate quoted by the lenders and the true comparison rate for the loan you are looking at. The loan comparison rate reflects all the fees and charges that you will incur in your loan and is therefore the true rate. All lenders are required by law to advertise their loan comparison rate together with the quoted rate. Insist on knowing the loan comparison rate before making any mortgage decisions.