People who require a home loan are very rarely financial advisers who can compare home loans or experts at selecting or even understanding the differences in the various options available.
Most people might ask family and friends first, do some research online and then approach a bank or mortgage broker for advice. By the time you have done all this there is a good chance that you would have been given conflicting information.
Most people know someone who they perceive is an expert at all things financial.
Those people may be successful in business or have experience with property, but often they are not very skilled when it comes to comparing home loans. The reality is most people have limited financial experience and may have only dealt with a single bank and therefore have not really ever looked to compare home loans.
Sure, it is well worth speaking to family and friends as some of the advice can be very helpful but often it is more about ensuring you have a general understanding rather than anything specific about the detail within any lending.
Organisations That Compare Home Loans
Canstar compares over 147 home loans and mortgages using the free comparison service. Canstar have rated the top home loans to save you money whether you’re a first home owner, refinancing your existing mortgage, or purchasing an investment property.
Each year Canstar researches and rates a large selection of home loan products on the New Zealand market and produces a Star Ratings Report for home loans. They use a star rating system to rank the various types of loans on both pricing and features with most emphasis given to price.
Total Score = Pricing + Feature Score
While it is great to see organisations trying to compare home loans, this method is not going to provide an accurate picture as in New Zealand the interest rates advertised by the banks are not what you would typically expect to pay if you went through a mortgage broker to get a home loan.
Kiwibank almost always advertise one of the lowest variable (floating) interest rates but charge an account fee. On the test they use with a $250,000 mortgage the rate is 6.55% so the annual interest payable is $16,375 plus there is a monthly fee of $10 making the total annual cost $16,495.
They compare this to Sovereign Home Loans which advertise a rate of 6.85% but have no monthly fees. This would mean in the Canstar caparison the interest cost would be $17,125 and make this more expensive that Kiwibank; however currently Sovereign Home Loans are offering a rate through mortgage brokers of 6.30% which would make the interest cost only $15,750 and therefore significantly cheaper than Kiwibank.
When it comes to comparing loan features an organisation like Canstar includes a range of features which might be relevant to a borrower, but in many cases many features that they use to compare home loans are not going to be relevant to an individual situation.
The features they compare include; lending terms, redraw/line of credit options, offset facilities, ability to make additional repayments, split facility options, switch fees, home loan fees, security/equity/guarantee options, top-up facilities, construction loans, security requirements, portability, loan application/approval and fixed interest detail.
Canstar weight the features depending on how they see the importance – top-up facilities account for 5% of the rating which may seem fine in most situations, but for a first home buyer who may owe their parents for helping with the deposit or have plans for a renovation then the top-up is an important factor to consider when getting a home loan.
Banks Have Limited Options And Give Minimal Advice
Banks have money to lend and most New Zealand banks have what appear to be similar home loan products too, but they are generally not very good at matching you with a home loan that really suits what you want. Maybe that is because the person at the bank has not be trained to know the differences, or the bank you are talking to does not have anything better.
Any one bank can only ever offer you that banks best option – which may or may not be what is best for you. Getting a home loan is a biog decision and the difference between two loans could have a serious financial impact for you. A bank has limited options and for this reason you could easily end up with a home loan that is second best… and you deserve the best.
“When I got my first home loan I went to the local bank and was so happy just to get approved. I was offered a home loan and accepted that without question. That was 25-years ago and I have learnt a lot since then – it was appalling really when I think about it now.” Stuart Wills (home owner and now a mortgage broker)
Mortgage Brokers Compare Then They Recomend
Some of the top New Zealand mortgage brokers have software that they use to compare home loans before they provide a recommendation. Unlike the organisations that compare home loans on a broad basis, mortgage brokers can look at what is important for an individual situation.
This way a mortgage broker can find a home loan that is right for you based firstly on the features that you want or require and then ensuring that the pricing is competitive too.