Tips for Choosing a Home Loan :

Once you’ve found your dream home, the one that ticks all the boxes on your list, the next thing you’ve got to sort out is the financing. However, actually choosing a home loan that meets your needs and doesn’t cost the world is much easier said than done. And without a road map, the process of choosing a home loan can become a long and drawn out affair. So if you’re looking for a home loan and don’t know what to look out for, here are some tips to help simplify the process.

You are in Charge:

Since you want a home, and you need a lender to give you the money in order to buy one, it is tempting to feel as though you need to please the lender in order to get the money that you need. This mindset is dangerous.

It is not difficult to turn this mindset on its head and remember that lenders need borrowers in order to earn interest and stay in business. There are plenty of lenders to choose from, we currently have 10 big banks and non-major bank lenders to compare, and if you ever walk away from a bank they will not hesitate to let you walk back in. When you approach home loans and creditors from this perspective, you are much more likely to pursue the interest rate that you truly deserve, and find it.

Fixed or Variable Rate?

A variable rate will typically have the smallest interest rate up front, but it can grow out of proportion at a later date, depending on how the rate is determined. In most cases, a variable rate home loan will have a fixed rate for a given amount of time. Once this period is over, the rate will then be adjusted according the state of the economy on a periodic basis.

A variable rate is idea for an individual who plans on moving out of the home within the fixed rate period. It is also the best choice if the interest rates are especially high, and can be expected to drop down within the next several years.

Lock in the Rate:

Home loan rates change all the time, typically after when the Reserve Bank changes the base rate of interest. Basically you’re riding up and down with the market. But if you are happy with the rate as it is, and you think that rates are going to go up then you might want to lock it in. When you choose to lock in the rate, be sure to get the information in writing so that there is no confusion about the rate in the future. This will give you secure that for “X” number of years your repayments are going to be stable.

Deposit:

It is a good idea to invest as large a deposit as possible. The smaller the deposit, the larger the size of the loan, which ultimately means spending more in interest. It is surprising how much longer a loan can take to pay off, or how much more interest payments are wasted, when a small deposit is paid. Use our home loan comparison tool to play around with the numbers and see what a difference it makes.

Ideally, a buyer would only purchase a home that they could save up a 2% deposit for which will mean that you need to borrow 80% of the property value. This means that the homeowner will not, in most cases, be required to pay for private mortgage insurance (PMI) and also significantly reduces the amount of interest and time required to pay off the mortgage. Sometimes the interest rate itself can be reduced by paying a larger deposit.

Fees:

Always make sure that you understand the associated fees before agreeing to anything. There can be setup fees, monthly fees, annual fees, controversial exit fees and penalty fees for paying it off sooner than your agreed loan term. Get a good estimate in order to get an idea of what the involved costs will be.

Conclusion:

Like most people, you’ll probably choose a variable rate home loan. That being the case, it is very wise to calculate the repayments if the interest rate were to go up 2% higher than the rate you can start off with. This will give you wiggle room. If you can’t afford the home loan repayments at the higher interest rate than you need to reduce your loan amount.