Non-Conforming Loans

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1. Add up those home loan fees
2. Check your statements for errors
3. Compare loan features, not just rates
4. Ensure your mortgage broker really delivers
5. Keep accurate records
6. Litigation lending earns some credibility
7. Look out for 'deferred establishment fees'
8. Pay your loan off quicker with fortnightly or weekly repayments
9. Rebuild your creditworthiness
10. Rewards for prompt repayments

1. Add up those home loan fees

Once you've saved up the deposit for a home, don't forget to take into account all the extra fees that come with buying a house - some or all of these: stamp duty, legal costs, disbursements, mortgage insurance, pest inspection report, survey report, builder's report, strata inspection report, loan application fee, valuation fee, registration fee, sundry fees like refinancing or switching fees.

On a mortgage loan of $300,000, expect to pay at least $15,000 in fees. With mortgage insurance, this will rise to about $17,470.

2. Check your statements for errors

There are claims that more than 50 percent of home loan statements contain calculation errors. Simple mistakes, like the entry of the incorrect balance or the application of the wrong interest rate at the wrong time can be costly and mostly favour the lender. We all make mistakes, even bank computers make them and that's why borrowers should keep a close eye on loan statements. Various software for your home PC is available that can run a check on your statements.

3. Compare loan features, not just rates

The more flexible the loan, the higher interest you'll pay. A variable loan which allows you to draw against repayments or offset savings against the mortgage will have a higher rate than a basic loan. Always compare loans with the same features when looking for the best interest rate.

4. Ensure your mortgage broker really delivers

Getting a broker to arrange your loan can certainly save a lot of time and hassle, but borrowers really must ensure the service they expect is the one that's delivered. Ensure the broker fully explains in writing why his or her loan recommendation is the best for your circumstances, not just the loan that earns the most for the broker. Ensure brokers also fully outline all upfront and ongoing "trail" commissions they will earn from lenders for your loan business. Never pay a broker a fee yourself unless the broker is prepared to rebate some or all of their commission earnings to you in return.

5. Keep accurate records

Keep accurate records of your deposits and ATM transactions. It is also wise to keep copies of your loan application and approval documents in a safe place.

This is the best way to avoid hefty fees which may be charged by a bank when its customers want to see copies of their cheques or loan files.

6. Litigation lending earns some credibility

As finance industry niches go there could not be many smaller than litigation lending, the business of giving plaintiffs financial backing in return for a piece of the action. There are no more than four or five "funders" in the market. But the sector might be about to attract some new players, following a recent High Court of Australia ruling that has added to the legitimacy of what has been a controversial business.

7. Look out for 'deferred establishment fees'

Home loan borrowers should watch out particularly for the big sting from "deferred establishment fees" which come into play these days if you leave a variable home loan early, typically within the first 3-5 years. They can be as large as the break costs on a fixed term loan and run into thousands. Most borrowers don't expect to change their loan in the first few years, but the fact is that the average life of a home loan is now very short - as low as 20 months.

8. Pay your loan off quicker with fortnightly or weekly repayments

Dividing your minimum monthly repayment into two fortnightly or four weekly payments can reduce the term of your loan in two ways:

• because there are more than two fortnights or four weeks in every month, dividing your original monthly repayment into two or four means you actually pay more over the course of a calendar month.
• when interest is calculated daily, the more frequent repayments result in less interest being charged to your loan over the course of a month.

But watch out. If requesting fortnightly or weekly repayments, make sure you specifically ask your lender to halve or quarter the monthly repayment. Unless you ask them, many lenders these days will just calculate the more frequent repayment on the basis of the minimum required fortnightly or weekly repayment, delivering very little extra repayment advantage.

9. Rebuild your creditworthiness

You may baulk at having to pay higher interest rates or comply with stricter terms on the non-standard loan alternatives.

However, paying off such a loan is one of the best ways to establish or rebuild your creditworthiness in the eyes of mainstream lenders. Many borrowers have used this source of finance as a way back to ordinary borrowing.

10. Rewards for prompt repayments

Check to see if the lender offers discounts on the interest rate if you build up a record of on-time payments.

This is one way to cut the cost of this high-rate form of finance as you go.