Selecting and applying for a home loan offer isn’t just about deciding between a fixed rate or variable interest rate. Here are some of the other factors to take into consideration:
Interest rates
Aside from choosing between a fixed rate or variable rate, you should also look at a lender’s initial rate offering and how it shapes up against other lenders in the market.
Some lenders also offer split home loans, which means part of your home loan is variable and part of it is fixed. This could allow you to take advantage of some of the some of the benefits of both types of loans.
Fees
There are numerous fees associated with taking out a home loan and they can add up over time. Some of the most common fees to look out for include:
- Application fees
- Annual ongoing fees
- Account-keeping fees
- Legal & settlement fees
- Settlement fees
- Exit fees
- Break fees (for fixed interest home loans)
- Annual package fee (if your mortgage comes bundled with other financial products and services)
Also keep in mind that some lenders offer to waive fees if you meet certain conditions.
Sometimes a home loan with a low fixed interest rate but high fees and charges can actually cost more than a home loan with a higher interest rate but lower fees and charges. One quick and simple way to get a better idea of a home loan's total cost is to look at the comparison rate, which combines the cost of interest and standard fees into a single percentage.
Repayment options
Different lenders have different stipulations for making home loan repayments. For example, if you have a three-year fixed rate home loan, or any fixed loan, you may not be able to pay any extra than the minimum repayments during the fixed rate period.
It’s important to choose a loan that offers you a reasonable balance of stability and flexibility in making repayments over time.
Other features
Some home loans are relatively basic, while others offer a suite of features. Consider other possible features such as:
- An offset account: This is a transaction account that is linked to your home loan. The balance of your account is ‘offset’ against your loan balance, meaning your lender attributes those extra savings towards your loan – so you pay less in interest.
- The option to redraw: A redraw facility allows you to borrow back extra money you’ve already repaid.
- Incentives: Some lenders offer additional incentives for home loans such as the ability to earn frequent flyer points or being offered a free holiday.
Choosing an appropriate mortgage offer for your home or investment property comes down to conducting some independent research and comparing home loans in relation to your financial circumstances. This includes checking the eligibility criteria, such as your loan to value ratio (LVR). Also, before making a home loan application, consider seeking professional advice by speaking with a financial adviser or a mortgage broker.