Size is not all that matters with Home loans

Size is not all that matters with Home loans

When searching for a good deal we often look at two main variables, quality and price. Depending on our budget or on our personality we will lean towards one or the other. This is especially the case when we deal with items that are important for us. Buying a home is as basic as it comes when talking about life’s necessities, somewhere to live. Admittedly you can always rent, but if you have decided to buy there are few things more important for you financially speaking  than to choose a good house at a good price with a competitive interest rate and conditions.

The problem arrives when we take a lot of care in choosing a home loan but we do not understand how the home loan industry works. What we tend to do then is to extrapolate principles that have worked well for us in other industries and assume that the same applies to home loans and the credit industry. For instance we might think that choosing a home loans is like choosing a car. If you want to get a decent car you must choose a good brand, better to get a Toyota than a  Lada. And if you are buying second hand better choose a reliable dealer, even though he is a little more expensive it doesn’t matter if you know he is honest and won’t take you for a ride.

These principles apply well to many industries. If you are buying clothes it also often worth paying a little more (or a lot more) to get better quality. This kind of reasoning makes many people overspend, nay, waste money on their home loans. When it comes to cash, all providers are the same. If a bank, a credit union or your parents are willing to lend you money it doesn’t matter who it is, what matters is the rate of interest and the conditions they demand from you. Granted it might not be best to borrow from a shark loan even if his interest rates are low because bankruptcy might be the least of your worries if you can’t repay your local shark loan. But barring that exception it really doesn’t matter who you borrow from. They can’t be a more reliable, better quality provider of loans, a dollar is a dollar no matter who gives it to you. The important point is how expensive the loan is.

Nevertheless most of us look to big banks in search of loans, looking for the “security” we feel they can provide. This makes many ignore other sources of loans like credit unions and other loan providers.

According to Shaun Cornelius Chief Executive of Australian firm Infochoice over  60 finance providers in Austalia alone undercut the big banks. This has a very significant effect on the everyday borrower’s budget. For instance according to Mr. Cornelius the average standard variable home loan rate on offer from a big bank is over 0.5% higher than the their most expensive non-bank rival.

This makes a big difference in our mortgage. The difference between a big bank and an alternative provider of home loans could mean up to 3 years more of mortgage repayments according to Infochoice’s CEO.