Finding a home loan can be a difficult and stressful process. We’ve broken down some of the most crucial variables to consider while shopping for a home loan if you can’t make heads or tails of all the jargon being thrown at you.
1. Check the interest rate
When shopping for a mortgage, the interest rate on a home loan is one of the most significant factors to consider. The amount of interest charged each month is determined by your interest rate, thus the lower your interest rate, the smaller your monthly repayments will be. A ten-basis-point difference in interest rates might save you thousands of dollars over the life of your loan.
2. Transparent and up-front fees
If you’re paying many expensive fees, getting a super-low interest rate can quickly become obsolete. Fees for home loans might include one-time, recurring, and exit fees. Application fees, property appraisal fees, conveyancing expenses, legal fees, and Lenders Mortgage Insurance are some of the upfront fees you may incur. Monthly service fees, annual fees, redraw fees, late payment fees, and switching fees are all examples of continuing fees. Although exit costs are uncommon, you may be charged discharge or early leave fees.
If at all feasible, attempt to find a loan with as minimal fees as possible. There are no monthly or continuing fees with our Smart Booster home loan.
3. Watch out for the comparison rate
The comparative rate, rather than the headline interest rate, is arguably more essential. It includes all of the expenses you’ll pay over the loan’s term in the advertised interest rate, exposing the loan’s true cost. Be cautious of lenders who advertise ultra-low rates while yet charging exorbitant comparison rates. That usually means you’ll have to spend a lot of money in fees over the course of the loan.
4. What loan type suits your needs?
Home loans are divided into two categories: variable and fixed. Your interest rate on a variable home loan isn’t fixed, so it could climb or fall in accordance with Reserve Bank cash rate fluctuations. This means that, depending on the state of the economy, your monthly payments may become cheaper or more expensive. A variable rate mortgage offers greater flexibility than a fixed rate mortgage and generally includes additional features such as an offset account and the ability to make extra payments.
Your interest rate is fixed for a set length of time, usually one to five years, with a fixed-rate loan. During this time, neither your interest rate nor your monthly payments will change. This cash-flow predictability is attractive to first-time house buyers, who frequently struggle to make the transition from rent to mortgage payments. After the fixed period expires, the lender’s usual variable rate will apply for the duration of the loan. It’s crucial to remember that refinancing a fixed-rate loan is normally not recommended because the break fees can considerably outweigh the savings that refinancing can provide.
A split loan is an option if you enjoy the idea of both of these loan kinds. A split loan is one in which part of your loan balance is charged at a fixed rate while the rest is charged at a variable rate. You can split the loan in whatever way you like, as long as the lender agrees, whether it’s 50/50 or 70/30. For example, if you had a $600,000 loan and wanted to fix 30% of it, you would pay a fixed rate on $180,000 of the balance and a variable rate on the remaining $420,000.
5. How long your loan term will be
Depending on the lender and the borrower, a home loan can last anywhere from 25 to 40 years. In order to save money on interest, it’s usually recommended that you choose the shortest loan period possible.
6. What loan features are included?
Loan features might help you pay off your loan faster and save you thousands of dollars. When interest is calculated, an offset account operates as a transaction account related to your house loan, with the balance offset against your home loan balance. For example, if you have $50,000 in your offset account and a $500,000 loan, you will only be charged interest on $450,000.
A redraw facility is another home loan option that may appeal to you. When you make extra payments on your home loan, they accumulate in a separate account from your regular payments and can be withdrawn. These monies can be used for a vacation, renovations, or as an emergency fund.
Another possible home loan feature is the ability to make extra payments. Some lenders will charge you for this, or limit the number and amount of extra repayments you can make. Additional repayments are allowed indefinitely.
Check out our borrowing calculator if you’re looking for a house loan and want to discover how much you can borrow with us.
Disclaimer: This article is not intended as legal, financial or investment advice and should not be construed or relied on as such. Before making any commitment of a legal or financial nature you should seek advice from a qualified and registered Australian legal practitioner or financial or investment advisor.