Home loan key fact sheets just a good starting point for borrowers: Mortgage Choice

Mortgage broker Mortgage Choice says home loan key fact sheets are a good starting point for making mortgage comparisons, but are not a comprehensive tool. 

Since January 1, 2012, lenders must provide customers with a home loan key facts sheet, setting out the details of the mortgage they may apply for including the interest rate, loan amount, fees, total cost of the mortgage (including interest), how much mortgage repayments will rise if the interest rate rises by 1% and ways to pay off their home loan faster. 

The fact sheet requirement is aimed at making it easier for borrowers to compare mortgage products and is part of the government’s banking reforms program, which also includes the ban on exit fees on variable-rate mortgages. 

The home loan key facts sheets do not constitute an offer to provide credit.

According to Belinda Williamson, acting head of corporate affairs at Mortgage Choice, the introduction of the fact sheets are a positive step but “only address one part of the home loan comparison process”. 

“While they do help borrowers assess the cost of a specific home loan product in comparison to others, they do not present a comprehensive comparison of the home loan's features such as the availability of a redraw facility, an offset account, etc. and the impact these may or may not have on the total cost of the loan,” Williamson says. 

“They also do not go to the extent of demystify specific loan types (such as interest only versus principal and interest, line of credit, etc.).”

Mortgage Choice brokers will provide lenders' key facts sheets to borrowers on request. 

“When choosing a loan it is important that borrowers compare all aspects of a home loan including the interest rate, any upfront, ongoing and exit fees, the availability of loan features and the impact of these on the total cost of the loan, the accessibility of the lender (e.g. do they have online banking, local ATMs, etc.) and the lender’s service quality,” Williamson says. 

Example (click to enlarge):

Damian Smith, CEO of comparison website RateCity.com.au, says the fact sheets will make it easier for borrowers to “compare apples with apples before they apply for a home loan”. 

"Anything that simplifies the lending process and encourages greater transparency in the home loans market is a good thing for competition. 

"The fact sheets will be standardised so lenders will be required to provide borrowers with information in the same way, making the comparison process easier. This will help first-time borrowers in particular compare loans side by side, and give them just a little more bargaining power – which is a good thing," he says.

The initiative has the support of consumer group Choice, with its head of campaigns Matt Levey calling the introduction of home loan key fact sheets “a welcome step towards transparency, allowing consumers to more easily compare mortgage products on their merits”.

“Choice has campaigned strongly for reforms to increase competition in the banking sector, and one of the most powerful ways to do this is to make consumers more mobile, able to seek out better deals and move their money” says Levey.

“Key fact sheets are part of this equation, along with measures like the ban on mortgage exit fees and steps to improve confidence in smaller lenders.”

Levey says they are part of the solution to overcome the perception revealed in Choice consumer surveys that there is too much hassle and little benefit in switching mortgages, “by making the switching process more straightforward, and making it easier to compare different deals in the market place on similar terms”.

“Experience tells us that those consumers who do switch often find the process easier than they expected, and that those who shop around often find better deals,” he says.

Though not obligated to do so, mortgage franchise RAMS – part of Westpac –will publish key fact sheets on its website. 

“This will enable consumers to compare the strength of the RAMS product set against the major banks products,” a spokesperson for the franchise says. 

Australia biggest mortgage lender, the Commonwealth Bank, is backing the scheme with a spokesperson saying it is “important to provide customers with the information they need to make informed financial services decisions”. 

For more information on the new home loan fact sheets visit the government’s website.