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After the decision to buy a home, the next big decision is where to go for your home loan. In the current interest rate environment, looking for the best price on your home loan is one factor, but there are other important considerations for new homeowners to think about too.
Should you stick with your current bank or look elsewhere? Should you base your decision on interest rates alone, or are there other factors to consider? How should you structure your loan – fixed or floating, pay it off quickly, or take a bit more time?
For most of us a home loan will last for a number of years. Committing to something that suits your life situation both now and into the future is important. So here are some things to consider when looking for the right home loan provider for you.
Will your home loan provider give you the help and support you need?
Buying a home can be daunting – especially for first-home buyers.
There is so much that feels like people just “know” – but it’s normal to have lots of questions. You should feel comfortable to ask your bank as many questions as you want. Getting help and guidance from people who know the process is invaluable – not only will it make the process easier, but it may even save you money.
At The Co-operative Bank our specialist lenders take the time to get to know our customers. We want to help our customers achieve their goals and have more in their pocket. We recognise that even though it’s our day job to provide home loans, this is a major life milestone for you.
Our specialist lenders can take a lot of stress out of this big step – and will be with you throughout the process. Good guidance and support can help you to make better financial decisions. It’s reassuring to know where to go when you have a question – all the way from application to settlement day.
What specials and incentives are on offer?
The initial interest rate is important, and often the first thing you look at. But it’s important to do your due diligence too because you can often save money in other ways.
Ask about new loan specials or discounts. For example, a cash-back offer could be agreed, with the bank paying an agreed amount into the borrower’s bank account after the mortgage is secured – usually a percentage of the initial mortgage. This can be a big help towards offsetting legal fees, moving costs or a new piece of furniture.
Many banks offer cashbacks as short-term incentives, rather than ‘always on’. But even if a cashback isn’t being promoted, it pays to ask if there are any current offers you might be eligible for. At The Co-operative Bank, for example, we currently have a special one-year rate just for first home buyers, which is 0.20% below our prevailing one-year home loan rate.
Reading the terms and conditions is important – especially for any cashback offer. Find out how many months you need to stay with the bank to keep this. Some require customers’ home loans to remain at the bank for up to four years, or the cashback has to be repaid. Some banks may also require you to have your income paid into an account with them to receive the cashback offer.
What are your loan options and flexibility?
Ask about your loan options, repayment flexibility, and ease of use with your other accounts and products.
There are many types of home loans available to help you to make your purchase. You may be eligible for a Kāinga Ora First Home Loan or be able to use some of your KiwiSaver funds towards your deposit. If you’re a first home buyer, this could mean you don’t need as large a deposit as you might think, so it pays to check if your bank offers these options. For example, not all banks offer Kāinga Ora First Home Loans (we do!), so ask them how to make the most of the options available to you.
At The Co-operative Bank, we have a range of options that are designed to help our customers into their homes – we start by gaining an understanding from you about your personal situation and goals. We have tools that customers can access themselves, like our online calculators to help you estimate what you can afford to borrow and what your repayments might be.
How you structure your loan can also make a big difference to repayments and how quickly you pay back your loan. You may want to consider a mix of options of fixed, floating or revolving credit. With The Co-operative Bank, a lending specialist or a member of our Customer Advice Team can talk you through the options. This can help you to manage your repayments and help minimise any impacts that changing interest rates have on your weekly budget by spreading them over different fixed term periods.
If you take a fixed rate option, check if there is flexibility or additional fees if you want to increase your repayments above the required minimum repayment during the fixed term period.
And of course, a home loan won’t be the only banking product you use. The bank you choose could also offer savings account options with competitive interest rates, accounts for kids that reward young savers, a credit card that suits your spending habits (low rate or rewards), insurance or KiwiSaver.
Do your values align with your bank?
Many customers also want to know that their hard-earned money is being looked after by a bank that not only ticks the boxes for them personally, but also seeks to do the right thing.
Where do their profits go? Is it important to you that profits stay here in New Zealand? In The Co-operative Bank’s case we aim to share a portion with our customers as rebates while the rest is invested back into developing future products and services for the long-term benefit of our customers.
Is it important to you that your bank is an accredited B-Corp – meeting high standards for verified social and environmental performance, public transparency, and accountability? At The Co-operative Bank we’ve been a B-Corporation for nearly three years. That reflects a wide range of practices like diverting waste to landfill through recycling, seeking and acting on feedback from our customers, supporting the wellbeing of our people, strong governance practices, and actively monitoring, offsetting and working to reduce our carbon emissions (including becoming a Toitū Net CarbonZero certified organisation).
And you might care about where your bank invests its money – at The Co-operative Bank we have an Ethical Investment Policy, which includes commitments not to invest in entities that are directly involved in fossil fuel extraction, nuclear power, or the manufacture of weapons, tobacco products or palm oil. We will also not invest in instruments issued by entities that have engaged in human rights violations, environmental degradation, corruption, or support of terrorism or that are located in UN sanctioned countries or are under the control of UN sanctioned regimes.
In short, what do you care about most, and does that match up with your chosen bank?
Taking out a home loan is a big step, and it is important to look at a range of factors beyond interest rates.
Jon Armour
Jon is Chief Product Officer at The Co-operative Bank – which is committed to helping New Zealanders bank better. Jon’s role is to ensure The Co-operative Bank’s customers have the best banking products available.
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