Beware the true cost of loans

Homebuyers who choose a loan purely because it has the lowest interest rate could be doing themselves a disservice.
Borrowers need to delve deeper into loan packages by examining fees and flexibility, according to Warren O’Rourke, the national corporate affairs manager with mortgage broker Mortgage Choice.

“Just because the rate is the cheapest in the market doesn’t mean that loan will end up the cheapest in the long run,” O’Rourke said.

“We all know a variable loan’s interest rate changes over time – as we’ve seen happen after (the May) cash rate decision – and a fixed loan’s rate has a limited time span.

“It is very important to look at the fees associated with a loan because, over time, the accumulation of fees charged for various reasons can be quite high.

“Where you think you’re saving money by taking on a loan with a lower interest rate, you could actually be paying much more”.

Comparison rates – which factor in loans’ interest rates plus extra charges – can help examine the true costs, though O’Rourke warns even these do not take into account some potential costs, such as redraw fees and early repayment fees, nor some cost savings, such as fee waivers.

O’Rourke recommended that above and beyond the interest rate, borrowers consider the following factors when choosing a loan:

For a comparison of loans, check out Australian Property Investor magazine, on sale now at newsagencies.