Balance home loan features and costs

When I took out my first home loan some twenty-five years ago the most important thing I focused on was the interest rate. Why? Because back then a loan was a loan was a loan and cost was pretty much the only real differentiating factor. Today however things are very different and the cheapest home loan doesn’t necessarily mean it’s the best home loan.
Competition amongst lenders has seen significant development in product innovation. Innovation is good because it means lenders are more aware of the needs of their customers and are developing products that meet customers’ changing financial and lifestyle requirements. There are lots of different loan types available today, the more popular include: variable rate, fixed rate, capped rate, interest only, split rate, low-doc, introductory, no deposit and non conforming. (For information on the features, pros and cons of these loan types, see my article Which home loan is right for me?).
Different loan types offer different features. The more features you have, the more the loan will cost because it costs the lender to supply these features. It’s important for you to work out what you are likely to need from your home loan, now and in the future. For example, do you want the certainty of a fixed rate loan, or the flexibility of a variable rate loan which allows you to make extra or lump sum payments? Do you want tobe able to offset your savings against your home loan and thereby reduce your interest cost or do you want the ability to be able to take a repayment holiday or draw down any extra equity you have built up? It really depends on your lifestyle, financial and personal objectives.
So remember that while cost is important, don’t forget your home loan is going to be your companion for quite some time so it needs to be able to support you now and into the future. You may find it’s worth paying a little bit extra now for features and flexibility in return for greater savings over the longer term – especially if you discover that a cheaper rate did not translate into the right loan.
My tip:
When choosing a home loan start by identifying what product and features you need, then compare lenders  for the best deal. Don’t forget to compare all the loan costs (not just interest) like lender fees and charges.