Finding the right property can be an exciting time, but it’s just one step on the path to property home ownership. For most buyers, finding a home loan to finance the purchase is also an integral part of the process.
Here are a few things to consider when deciding which home loan is right for you:
There is no one size fits all approach to choosing a home loan, so take some time to do your research and find one which meets your particular needs. Comparison sites such as Mozo or Finder can be a good place to start, allowing you to compare home loans across a range of providers. For tailored advice, consider speaking to an independent broker.
A low interest rate environment may sound like an ideal scenario for home buyers, but remember that you may have this loan for anywhere up to 30 years and your interest rate in that time will change. You could end up having to make higher repayments than you had initially budgeted for.
Online tools such as a borrowing calculator or repayment calculator may help you determine how much you can afford. To see if you can cope if interest rates rise, consider doing the same calculations with interest rates a couple of percentage points higher than they currently are.
3. Fixed or variable rate?
Choosing whether to fix the interest rate on your loan should be more about your personal circumstances, than it is about trying to get the best rate. Factors to consider include whether you intend to make significant additional repayments into your loan, whether you intend to sell your property or discharge your loan for any reason in the short term, and whether you are comfortable with your loan repayments potentially increasing without significant warning. When weighing up which type of home loan is right for you, consider the following tips on choosing a fixed or variable rate home loan.
4. ‘Interest Only’ or ‘Principal and Interest’?
Both investors and owner occupiers can consider two home loan repayment structures – interest only or principal and interest.
Many owner occupiers choose to repay the principal as well as the interest, meaning at the end of the home loan term they will own their property outright. Property investors often opt for interest only loans, relying instead on capital growth to deliver a long term return on their investment.
Although interest only loans may appear more affordable in the short term, remember you will still need to repay the principal in full once you have paid off the interest.
5. Value for money
When choosing a home loan, the interest rate offered by the lender is often a key decision making factor. However, if you’re seeking long term value for money, consider adopting a more holistic approach and take into account value for money across all home loan features including fees as well as interest rates. Some lenders may offer additional features such as mortgage rewards or incentives.
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