Looking for a home loan can seem overwhelming – there are a lot of choices out there and it’s hard to know where to start.
With a little research and homework, finding the right home loan is actually more straightforward than you might think. Whether you’re buying a home or investment property, it’s just a matter of choosing a home loan that works with your lifestyle and financial goals. When it comes to your finances, you’re the expert, and you should feel confident to make the right choice.
To help you on your way, here’s a few things to keep in mind when you’re identifying what home loan works for you.
Are you looking for a fixed rate home loan?
Have a think about what type of loan would work best for you between fixed and variable rate loans. Fixed rate home loans have an interest rate that is set for a certain period of time. This will allow you to protect yourself from interest rate rises and enjoy the certainty of knowing exactly what your repayments will be for the set period.
Or a variable rate home loan?
Variable rate home loans will move with the changes in the market interest rates and other factors. Some variable products offer more features for the customer, and you can benefit from falls in interest rates.
Or something in between?
Some banks offer combination loans that merge elements of fixed rate and variable rate loans. Depending on your goals you may want to split your loan part variable & part fixed, so you get the flexibility of a variable rate loan & the certainty of a fixed rate loan.
Aim for a loan with a lot of flexibility, which may help suit your lifestyle. For example, some products have additional repayments at no extra cost and the ability to make repayments via direct debit, internet and phone banking services. At ING for instance, additional repayments are unlimited on Mortgage Simplifier and Orange Advantage variable rate products. What’s more, direct debit payments are a part of the deal.
Think about offsetting your interest payments
Look into the possibility of setting up an offset account, which can save you a lot of money on interest. With offset accounts, the balance in your offset account is “offset” daily against your loan balance, and the lender generally only charges you interest on the difference between the amount in your offset account and your loan balance. (Some lenders may take into account only some of the funds in an offset account when calculating interest on your home loan.)
Financial institutions may require a 20 per cent deposit when purchasing a home. If you don’t think you can achieve this by the time you want to purchase, Lender’s Mortgage Insurance (LMI) could be an option for you depending on the lender. LMI may mean that lenders can let you borrow a higher proportion of the purchase price, allowing you to purchase a property with a smaller deposit than expected. With LMI, the lender is protected if you aren’t able to afford loan repayments. There are calculators available that can help you see the estimated cost of LMI for your loan.
Make sure your potential lender is transparent
Ask your potential lender about how pre and post-settlement issues are handled. For instance, does the lender have a call center readily available for these matters?
Talk to them about all fees, not just exit fees (if any). The home loan may also involve other fees such as discharge, break or settlement fees. There is also normally a fee associated with locking in a fixed rate.
And keep in mind, what a lender offers you the first time isn’t always their best offer.
Questions to ask yourself before you proceed
There are several questions you will need to ask yourself before making the decision.
Question to ask
- Do I want to pay more than the minimum repayment?
- Is there a chance I'll need to redraw?
- Does my income allow for fluctuating interest rates? Or would I sleep easier with a fixed interest rate?
- Do I want to pay account keeping, monthly or application fees?
- Do I want to make additional repayments?
- Would I like a revolving line of credit with my home loan?
When it gets down to it, the person who knows your needs best is you. The key is doing your research. Check out ING’s home loan comparison tool to see if you’re getting the best possible deal.
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