Money: Navigating loan maze

By MARK FRYER

Mortgage-hunters have never been so spoiled for choice. They have more and more variants on the standard loan to compare, and an ever-increasing number of lenders to choose from.

But with more than 40 lenders eager to offer you a home loan - and that's without counting the smaller local building societies - is it just more of the same or genuine competition?

The good news is that there is real competition in the mortgage market, making it well worth looking past the big-name banks to see what some of their rivals have to offer.

But don't write off the banks. For some types of loan they are as competitive as anyone.

When it comes to that most crucial issue, the interest rate you will have to pay, the mortgage market has developed a split personality. Fixed-rate loans tend to be much of a muchness but for variable loans the range is wide enough to make it well worth shopping around.

On the fixed-rate front, all the big five banks (ASB, ANZ-PostBank, WestpacTrust, National and the BNZ) are marching in step, charging 7.95 per cent for one year and 8.15 per cent for three years. Broadly speaking, the other lenders are much the same, or in many cases slightly more expensive than the banks.

It's a very different story if you are after a floating rate loan. The big five all charge 8.5 per cent. Some of the other banks and the non-bank lenders offer 0.5 per cent lower, sometimes more.

Does half a per cent matter that much?

Too right it does - on a $150,000 loan, with payments of $1200 a month, the difference between 8.5 per cent and 8 per cent is the difference between paying your loan off in 25 years 6 months or being out of debt three years sooner, and saving $44,700 in the process.

Sticking with the same mortgage for a quarter century may no longer be as common as it once was, but the principle remains the same: an apparently small difference in the interest rate makes a big difference long-term.

You don't have to go far past the big five retail banks to find useful reductions in floating loan rates. For example, HSBC, which is a bank, and a very large one at that, is charging 8.1 per cent, though you will need to borrow at least $125,000.

Several mortgage specialists, such as Resi Home Loans, Wizard Home Loans and Silver Fern, are in the 7.79-7.85 per cent range, though you may have to sacrifice a lot of flexibility to get such a low rate.

Those three are just some of many new entrants who have made the mortgage market so crowded in the past few years.

Variously describing themselves as "mortgage bankers," "mortgage originators," "mortgage managers" or other variations on that theme, many are offshoots of Australian operations, often providing their services over the phone or internet.

While they may be low-cost operations, their offerings can be every bit as sophisticated as the banks'. Choices include split loans (part fixed, part floating), revolving credit mortgages and a "redraw" option (the ability to pay more than required, then withdraw the excess if you need it later). Some allow borrowers to use the internet to check loan statements, make extra payments and generally manage their mortgage.

The increased competition is not just a benefit for new borrowers. The fact that many lenders do not charge an upfront fee, or if they do, are often prepared to negotiate those charges, has made it much easier to refinance an existing loan at a more attractive rate, although you will typically be hit with a penalty payment if you repay a fixed-rate loan early.

If you feel uneasy about arranging what could be the biggest transaction of your life with a lender you may never have heard of, it's worth remembering who is taking a chance here. It's them, not you, who is providing the money and taking the risk.

But problems can arise with mortgages - if a lender charges you the wrong interest rate, for example, or doesn't explain fees and penalties.

Complaints about lending are one of the big sources of work for the Banking Ombudsman, indicating that things do sometimes go wrong.

That avenue of complaint is one advantage the big lenders still have over some of their newer competitors, since the Ombudsman scheme only covers the big five banks plus AMP Banking, Citibank, HSBC, Rabobank and TSB.

If you are the cautious type that may be an issue, although Rob Tucker, chairman of the Mortgage Brokers' Association, says he hasn't heard of borrowers having any great problems with the newer specialist mortgage lenders.

* Contact Personal Finance Editor Mark Fryer at: Weekend Business, PO Box 32, Auckland. Ph (09) 373-6400 ext 8833 Fax: (09) 373-6423 e-mail: mark_fryer@herald.co.nz


WHERE TO LOOK FOR THE BEST DEALS


If you're hunting the best mortgage deals, you could get to work on the phone, but you're more likely to end up with exhausted ears than an exhaustive list of what's on offer.

For computer-users, several internet sites offer a much more convenient way of looking over the competing rates. A few to try:

* E-Loan

* Consumer (click on "BankCheck" then choose "latest mortgage rates").

* Good Returns (click on "mortgage rates").

* Interest (click on "mortgages").

* Intel Mortages (click on "interest rates")