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5 questions to ask your bank when applying for a home loan

There are many lenders in the market place and when you have decided to call on the few that made your short list it is important to compare what they are offering!

During the loan interview and application assessment process whilst you are been interviewed by your banking officer it is also a good idea for you to likewise ask the bank a few questions that will help you compare lenders and their products.

Asking the following questions will help you to ultimately decide as to which home loan product is best for you:

1. What is the comparison rate on this loan?
To determine how much you will pay in terms of fees and charges over the term of the loan you need to know the comparison rate charged by the lender. You will need to be provided with the following details:

Monthly account keeping - Charged on a monthly basis
Establishment fees - Up-front application fees, settlement fees, valuation fees
Annual management fees - Any annual management fees, especially for Professional Home Loan packages

The comparison rate is generally higher than the initial interest rate quoted by the lender because the comparison rate takes into account all the costs associated with a loan into a single rate of interest over the term of the loan it includes all of the fees as per above. Warning: The comparison rate does not include any break fees, early repayment fees, dishonour fees or discharge fees.

2. Do I need to pay for Lenders Mortgage Insurance?
Lenders mortgage insurance is usually payable by the applicant if the loan amount exceeds 80 per cent of the purchase price or the valuation amount of the property. The mortgage insurance premium can at times be as high as 1.5 to 3 per cent of the loan amount greatly increasing your property buying associated costs. Some banks use more than one insurer and the premium may vary considerably. You need to ask whether you can have more than one quote for lenders mortgage insurance. However, some banks only use one mortgage insurer. Some lenders may waive the need to pay for lenders mortgage insurance although may limit the term of your loan considerably hence, increasing your monthly loan repayments. The best way to minimise the lenders mortgage insurance premium is by saving more of the deposit and try to limit your borrowing to not more than 85 per cent of the purchase price of the property. See our Lenders Mortgage Insurance calculator for more information.

3. Can I lock in my interest rate before I settle my loan and will it cost me to do so?
The interest rates may increase during the time that you apply for your home loan and the time that you actually settle the loan and typically the rate on settlement day will be the rate that you will lock into (lock rate options are only available for fixed interest rate loans). All lenders should be able to provide you with a rate lock option so that the interest rate is guaranteed not to increase prior to you settling your home loan even if the market rates increase. Rate lock fees may apply. Be sure to ask your lender on what basis are the fees charged.

4. Are there any break costs or early repayment fees associated with this loan?
Most home loans and home loan packages do come with early repayment fees and break costs especially if the loan is repaid in the first 4 years. Lenders will charge a deferred establishment fee if you discharge your loan within the first 4 years. However, this may vary from lender to lender. You may also incur an early termination interest adjustment if you break a fixed rate loan (typically, you will incur a fee if the interest rates drop to a level lower than your original lock in rate) all banks need to provide you with transparency relating to all fees and charges in writing before you settle your loan. You need to ask for the duration of any penalty period and how the penalty is calculated. Some lenders do provide lower rates and fees structures if a borrower accepts the prepayment and early break costs conditions.

5. How long will it take to process my home loan application?
There are many factors influencing the home loan application process. The bank needs to verify your employment, asset position and credit worthiness and undertake a full appraisal by conducting a property valuation on the security property you are offering. One major factor is whether the bank is overloaded with loan applications (as they may be during a special promotion or when introducing a new product) usually your conditional approval may take up to 10 days or more. If you are purchasing a property the vendor will usually want to settle the matter within 6 weeks of you exchanging your contract of sale. Before you officially apply with the lender you need to ask whether they can meet the 6 week turnaround period generally required.

In the event that your prospective lender is unwilling or hesitates to provide you with less than satisfactory answers to the above questions then perhaps it might be best not to use them.

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