Hi guys
I've been researching online in order to obtain the best home loan for a new property that has been purchased. I haven't spoken to any brokers however would appreciate any advice from industry experts. My wife and I have a $200,000 deposit (from sale of previous property) on a $540,000 purchase price and a combined income of $120k p.a (gross) with 1 dependant so from a servicing perspective, I think I'm in a relatively strong position (ie: would be a good, low risk customer). The house is owner occupied, not for investment purposes.
I am seeking the lowest possible outgoings in paying off the home loan, and have no plans on exiting the mortgage within the first 5 years (my last home loan was in place for 8 years).
My research has resulted in these two options being the best I could find.
$360,000 home loan
Public Mortgage Group – $0 upfront, $0 ongoing fees, 5.81% p.a with unlimitted free redraw (giving ability to salary dump/offset)
State Custodians Mortgage Company – $725 upfront, $345 p.a fees, 5.89% first 5 yrs, dropping to 5.69% ongoing with 100% offset available.
Over a 30 year term, the first option is $175 per year cheaper.
My question is, is there a better deal out there?
Gary
Hi Gary,
Although these deals look good you need to look at any exist costs – even though you have no intention to refinance.
When Westpac purchased RAMs they did not take over all of the existing book – RAMs lost around 80% of their share price within a few days when they started defaulting on their fundig arrangements – some clients are still on rates close to 8.0% and are stuck due to high exit fees – even though the loans were originally cheap.
Another example was GE who were funding mortgage manangers – they increased rates by approx 0.75% when the banks were getting bad press for increasing by 0.3% – the reserve lifted by 0.25%.
Most of these mini lenders have no control over their cost of funds. Make sure there are no high defferred establishment fees or exit fees.
If you can get out quick – Without penalties – it might be OK. I stay clear of small no frills lenders however that is a personal decision.
I agree
I would still prefer big 4s or ING
remember the long term benefitBanker – I've looked at the exit fees for both. Pacific Mortgage Group advised their exit fee is 1 months payment (approx $2200) and State Custodians is a sliding fee (1% of loan in first 3 years, 0.8% of loan in 4th year, and 0.6% in the 5th year). In saying that, I am a little concerned about what happened with GE Money and RAMs and how any significant change in the finance/loan market would impact a smaller lender.
God_of_Money – I compared these loans using the loan comparison calculator on infochoice.com.au with the best of the big 4 (and I actually get a discount with the NAB through work) and it works out as follows.
Public Mortgage Group – $0 upfront, $0 ongoing fees, 5.81% p.a with unlimitted free redraw (giving ability to salary dump/offset)
NAB Choice Package – $0 upfront, $350 p.a ongoing fees, 5.99% p.a (my discount is 0.05% above their current .70% choice package discount). With the Choice you get all the bells and whistles of fee free credit card, etc however I believe there are better credit card options out there. I've heard from various sources that the current NAB variable rate won't sustainable and that they will join the other 3 big banks (bringing the rate up to ~6.24%) shortly.
Over a 30 year life of the two loans, the NAB option is $25,007 more expensive (going up to $45,949 with the rate equivalent to the other big banks). That's no small amount!
My previous mortgage was with the CBA with their wealth package and there was nothing special about the service they offered that would make me think i'm missing out on anything with a smaller lender.
True Gary78
but rate is not everything, NAB/CBA offer true offset account, and PMG does not.
The flexibility dealing with big banks and you can expand your IP much easier than through PMG.
PMG might collapse.. and just look at the fate of all the investors/homebuyers of Wizard/Old RAMS/GE Money..
they suffered alot paying 8% and difficult to exit.
We are talking 30 years… and it is a long long time… things could happenWhy not also work on establishment fees, interest and exit fees if refinanced at 3 and 5 years. Add discharge of mortgage and a new mortgage fee, new bank establishment fees etc.
This will show how much it will cost if you take this option and move in 3 or 5 years. This would be a far more common outcome than keeping for 30 years –
In addition to their exit fees mentioned above, they will also use an agent to attend settlement (release of title) when you exit. This will be additional to the exit fees in most cases – approx $350 is standard. I’ve seen up to $700.
god_of_money – you state that NAB/CBA offer true offset acount where as PMG does not. If I deposit my salary into the mortgage account with PMG and whilst it is in there, it acts as an offset against interest charged, isn't that the same thing as having it in a separate account and being offset? Am I missing how the calculations are done?
In regards to 'PMG might colapse' I understand that is a risk, however I don't believe in living my life with that sort of pessimism. They have won awards from various magazines and websites so they must be doing something right. (although saying that, the 1 line reply's to my questions via email isn't the most customer friendly service i've ever recieved).
Banker – the establishement fees are $0 with PMG and through my work, I can get the $600 NAB establishment fee waived also. If I break whichever home loan I take out now, the set up fees for the next loan will be the same no matter what so I don't think that needs to be calculated into the comparison. In terms of settlement fees, CBA charged me $350 (along with $4000 for Early termination of a fixed interest loan – thanks very much). NAB advise their early termination fee is $900 which is $1300 more than PMG (amount would be saved within the first 2 years of taking out the PMG loan).
I understand the reluctance of people to take out home loans outside of the big 4, or what so called 2nd tier lenders, however if the companies are legit and have a good product, I'm leaning towards going with a smaller company which has a superior product.
Gary as GOM has mentioned a true 100% offset account and loan redraw (which is what PMG is offering are not the same from a potential Tax perspective.
I agree that many of the 2nd tier lenders can be extremely competitive however with the companies who have named you are talking 4th tier.
I guess many of us on the forum here remember the likes of Mac Bank (Top tier) Sieza, Rams mark 1 etc etc.
Also bear in mind that most of these loans are mortgage insured irrespective of the lvr. (Doesnt mean you pay the premium)
That might suit you but for most investors they do not want to be limited down the trackRichard Taylor | Australia's leading private lender
Richard – Thanks for your reply. Although I know this is a property investment forum, this home loan will not be for an investment, but will be my primary residence. My search for any forum discussing home loan options hasn't come up with any other alternatives so I posted here.
As a 4th Tier lender, aren't they sourcing their finance from the same places as the big banks? What differenciates a 2nd tier to a 4th tier lender for instance? I'm trying to educate myself as much as possible before making the decision.
Gary
Hate to say NO they dont source their funding from the same place as major Bank.
Firstly they cant source any retail deposits so it is all down to RMBS.
As has been mentioned previously Rams, Aussie, Mac all had attractive low rates at one stage in the game.
Richard Taylor | Australia's leading private lender
@gary – It might be an idea (considering your good position) to go and see a mortgage broker. For me mortgage brokers didn’t work to well because I didn’t fit their bill (Low income, investing with trust, one child, young, casual worker etc) but for you with a large deposit and good combined income a mortgage broker should be able to find you the best deal.
I ended up going with Bank West because they had really low rates, and almost no exit fees. Which means when I come to refinance in 3-5 years time it won’t cost me an arm and a leg. Good luck, but I suggest getting some professional help…especially if you are considering smaller lenders.
Ryan McLean
http://CashFlowInvestor.com.au
Positive Cash Flow Properties Are Just a Click AwayRyan McLean | On Property
http://onproperty.com.au
Email MeCheers Ryan for the reply. I've got a mortage broker coming around on Tuesday evening and i'll see what he can offer.
Hi Gary, 5.89% is that fixed for 5 years? if it is that is cheap, but is it still current today or did you look at an old web listing?
Gary, although unlikely in the short term with interest rates rising, however if the economy tanks, interest rates drop, the recession that we didn't have hits & you need to exit the loan (possibly for a cheaper loan), what exit fees will be charged ie not just early break fees but 'loss of interest' etc?
I agree
I would still prefer big 4s or ING
remember the long term benefit….I found out through a bit more research that State Custodians get their funding via Challange Mortgages who recently were bought out by NAB and renamed to AdvantEdge. $120bn Loan Book according to the online info. Sounds pretty stable to me.
Hi Gary, just wondered how you got on with your mortgage search and who you decided to go with in the end?
We're in a similar position to you…looking to leave Westpac…after the best interest rate possible…and also considering Pacific Mortgage Group given our frustration with the big 4 banks.
Just trying to get more info as to what a mortgage manager (i.e. PMG) is compared to a broker before making our decision.
Also think about the future, in terms of accessing equity etc. Much easier with a major bank.
Terryw | Structuring Lawyers Pty Ltd / Loan Structuring Pty Ltd
http://www.Structuring.com.au
Email MeLawyer, Mortgage Broker and Tax Advisor (Sydney based but advising Aust wide) http://www.Structuring.com.au
Another point, at some stage in the future you may also consider fixing your loan – Banks generally have better fixed rates than the non bank lenders.
Terryw | Structuring Lawyers Pty Ltd / Loan Structuring Pty Ltd
http://www.Structuring.com.au
Email MeLawyer, Mortgage Broker and Tax Advisor (Sydney based but advising Aust wide) http://www.Structuring.com.au
It is difficult to compare b/w non-bank vs. bank lender by looking at the IR only.
I am still be able to get 6.56% with ANZ+Offset
You must be logged in to reply to this topic. If you don't have an account, you can register here.
