How to score the best mortgage

Finance journalist Michael Pascoe shares his top tips on how to get the best deal on your loan - by Michael Pascoe

Australians collectively pay a “lazy tax” of billions of dollars a year on their mortgages. It’s called the “lazy tax” because most of us are too slack to bother searching for and negotiating the lowest possible interest rate.

The average Australian pays about 4.4 per cent on their mortgage. A quick visit to the Canstar.com.au comparison site will show plenty of loans starting with a 3 or the barest fraction above 4 per cent. Given the size and length of our mortgages, those extra 50 points most people pay end up costing them tens of thousands of dollars.

The steps to getting the best loan are simple:

Check out a financial comparison website. With any comparison site search out the equivalent of a “show all” option to make sure you see more than just the institutions paying commission or an advertising fee. You’ll notice the best offers don’t come from the Big Four banks. Remember to focus on the “comparison rate” – it’s the real rate once fees and charges are taken into account.
Having chosen the institution and rate you like most, check the fine print to make sure it suits you. (One thing to insist on is an offset account – it’s the best place to park any spare money.) Then apply to see if the institution wants your business.
That’s generally enough, but to be sure you’re getting the best deal, give your existing bank/credit union/building society the chance to match or beat the rate you’ve been offered.
An extra step can be to phone a mortgage broker. Be upfront about what they have to beat – it’s not fair to waste a broker’s time. Brokers really come into their own if your loan is not straight forward, if you don’t fit a bank’s normal computer model.
Don’t think that’s the end of it, once you have chosen your mortgage and started paying it off. Make the effort to check you still have the best deal every year or so as rates and offers change.

Yes, there’s a little time and effort involved, but it’s an extremely attractive hourly rate when you work out how much you can save.