I track home loans for a living – here are the top 6 features I want from my first mortgage

As someone who tracks home loans for a living, I know the sheer amount of options can feel overwhelming, especially if you’re a first home buyer.

Well, I’m a (hopeful) first home buyer too, and while I’m not at the stage of going to open houses just yet, I would like to become a home owner in the next few years.

So I wanted to share my list of the top six things I’ll be looking for when I’m ready to go house hunting – hopefully it can help you too.

My number one priority when I apply for my first mortgage will be a low interest rate and a low comparison rate.

I think it’s essential because it’ll have the biggest impact on how much I pay in interest, and every extra percentage point that I can reduce it by will be money staying in my bank account.

Here’s an example to show you exactly what I mean – I used Mozo’s home loan comparison calculator to look at a loan of $500,000 over 25 years and found that:

• With a 6% interest rate, monthly repayments would be $3,222 and I’d spend $466,452 in total interest

• With 5.50% interest rate, monthly repayments would be $3,070 and I’d spend $421,131 in total interest

• Total difference of $45,321 in interest over the life of the loan

Note: calculations assume principal and interest payments.

But the interest rate isn’t the only factor I’ll be paying attention to. You’ll notice that every home loan has both a headline interest rate and a comparison rate.

If you’re not familiar with the term, the comparison rate takes the interest rate, adds in any other upfront fees from your lender and rolls it into one simple rate, which is designed to make it easier to compare home loans at a glance across multiple lenders.

An important note on comparison rates though – when advertised by banks they are always calculated based on a $150,000 loan, so your actual comparison rate will change depending on how much you borrow.

They also don’t include fees that you might come up against during the life of your mortgage, such as early repayment or redraw fees.

Still, one of my tips for you is to pay close attention to the comparison rate. If it’s much higher than the interest rate, you’ll know there’s fees lurking.

I know from looking at Mozo’s database daily that home loans can come with a wide range of fees. I’ve seen upfront fees that run into the hundreds of dollars, and you can also be stung with ongoing fees that come around monthly or annually.

When I get my first home loan, I’ll be looking for one that has minimal (or zero) fees attached because I want 100% of my repayments to go towards paying down my debt. Some of these extra costs may seem small at first, but they can get significant over time.

While it’s possible to find lenders that won’t charge you upfront or ongoing fees, there are some costs that can be hard to avoid, such as the cost of a conveyancer to handle the legal aspects of buying property.

There are also government fees to consider, but because I’ll be a first home buyer, there’s potential for me to receive an exemption or concession on fees such as stamp duty.

Some lenders will offer you a different interest rate depending on your loan-to-value ratio (LVR). Your LVR refers to the amount of money you need to borrow compared to the cost of the property.

In other words, if you have a 20% deposit for the house you want to buy, you have a loan-to-value ratio of 80%.

I want to choose a home loan that offers tiered interest rates because it means I can reap the benefits from paying off my mortgage, and it’s nice to know that when I reach LVRs of 70% and 60%, my rate can get lower.

However I don’t think this should be done with misguided loyalty to any lender – if the first home loan I choose loses its edge down the track, I’ll be looking to refinance to a better rate.

I’m quite a diligent saver, and I’ll be aiming to pay off my home loan faster by making extra repayments when I can. But I still want to be realistic, and that means I want the ability to redraw those additional repayments when needed – and to do it free of charge.

There are plenty of variable rate home loans that would allow me to redraw any extra funds I’d paid at no cost, and the feature is pretty common for fixed rate home loans too.

When I need help, I just want to talk to a person – not an AI chatbot. Having a lender that offers locally-based customer support is pretty important to me, because it’s a good indication that the provider is invested in supporting its customers.

I’ve found that customer-owned banks and credit unions often have locally-based support teams, so these lenders will be at the top of my list when I’m ready to go house hunting.

In an uncertain rate environment, splitting your home loan can be a smart move, but I feel like people don’t talk about this strategy enough.

A split home loan is when you divide your mortgage into two accounts – one with a fixed rate and the other with a variable rate. You can split the portions however you like too, whether it’s 50/50, 60/40, 70/30 and so on.

At a time when it’s uncertain if and when interest rates will come down again, I’ll be looking to fix part of my home loan to a low rate, and hoping to protect myself from potential interest rate rises.

By keeping another portion of my mortgage rate variable, I can still give myself some wiggle room to benefit from rate cuts.

I may not be ready to apply for a home loan and hit the Saturday inspections just yet, but if you are, keep these features in mind when you start comparing your options.