How do loan providers entice borrowers to select their product over the hundreds of options in the market? They turn to low advertised rates, cashback offers, 0 application fee hooks  and other marketing campaigns to substantially increase a lender’s lead volume. It’s important for borrowers to be aware of these strategies that could cost them extra in the long run.

News headlines have been littered with monthly cash rate increases made by the RBA in an attempt to curb inflation in Australia. Lenders are usually left with little choice but to increase their variable interest rates inline with the cash rate change. The adjustment is quick, with many lenders modifying their rates within 1-2 weeks of the announcement. However, some lenders delay it for way longer, keeping their previous rates on websites, banners and other customer-facing marketing materials for months. Aussies shopping around for home loans get hooked into what they thought would be a lower rate compared to the market just to be met with a nasty surprise of a higher rate later on. Lenders normally get away with it by explaining in the fine print how the displayed rates don’t take into account the latest RBA cash rate movements. Read the fine print at all times and remember that it is okay to change your mind when you get more information about the product.

Lenders may offer cashback promotions to entice shoppers to consider their services over competitors. While ‘free’ money does sound like a good deal, it is crucial to remember that it is very rarely actually free, or that the extra cost incurred by the lender may be charged back to the borrower in another way. In return for a lump sum payment after settlement, the financial institution may charge borrowers a yearly fee or a higher interest rate over the course of the loan. However, depending on the borrower’s financial situation, it can still be useful to pay off application fees, discharge fees from a previous lender, lender’s insurance or stamp duty.

Those new to home loans may understand the basic concept of the interest rate but are confused by the accompanying comparison rate beside it. Put simply, a comparison rate comprises of the interest rate plus certain fees and charges relating to the loan. Aimed to help borrowers understand the true cost of the loan, the comparison rate is a crucial factor when comparing varying products. Products with deceptively low interest rates with excessively high comparison rates need more deliberation with your mortgage broker.

A licensed mortgage broker is an effective way to navigate through the mortgage landscape and into your first home. Find one you can trust as they are more knowledgeable about the assortment of products that would best suit your financial needs.

Any advice provided is general in nature and should be considered in line with your financial situation, needs and objectives.