October 6, 2010
In order to buy the home of your dreams this mortgage season, you need the right mortgage. But how do you know which one is right for you? RateCity has compiled five ways to help you choose the best home loan to suit your lifestyle.
1. Compare intro loans to variable loans
Intro rate home loans are generally targeted at first home buyers because of their lower interest rates for usually the first 12 months. However at the end of the intro period the interest rate reverts to a higher variable rate for the rest of the term.
Make sure you consider the comparison rate which includes some upfront and ongoing fees and averages out the interest rate over the entire loan term.
For instance, one the of best intro rate home loans on RateCity is by Hemisphere Financial with an advertised rate of 5.94 percent for the first 12 months. Its comparison rate for a $300,000 mortgage is 6.86 percent. Compare this to one of the best variable mortgages on RateCity, Match Home Loans with a comparison rate of 6.55 percent. The intro loan could cost you $18,000 more in interest after 25 years.
2. Fix, variable or split?
Generally the best time to fix is when the gap between fixed and variable rates is less than 1 percent. If you’re not sure whether to fix or go variable, a split loan can be a better option. By splitting your loan in two equal portions for instance (half fixed and half variable) any increase in rates will have half the impact as only the variable half will be affected. Although, if rates decrease only half of your repayments will too.
3. Decide what features you need
Selecting between what features you need and what you want are two different things. You may pay higher rates or fees in return, so pick features you will use.
Some common features include:
- a redraw facility, which allows you to access extra money you have added to your mortgage;
- lump sum repayments, so you can make bulk payments on an ad hoc basis.
- mortgage portability, which allows you to transfer the loan from your current home to another property, which can sometimes reduce fees such as establishment of a new loan;
- additional repayment options, which may determine whether you can make extra repayments on a regular basis; and
- mortgage offset accounts, a transaction account that is linked to your mortgage and offset against the unpaid balance of your loan to reduce the amount of interest payable.
4. Narrow down your search by checking LVRs
If you have a specific deposit in mind, narrow your search by choosing home loans with a suitable loan-to-value ratio (LVR). This is how much you can borrow as a percentage of the value of the property. For instance, a 0.90 LVR loan means you can borrow up to 90 percent of the value. So for property worth $300,000, you need a minimum deposit of $30,000. Be aware that higher LVR loans often have higher rates and fees than lower LVR loans.
5. Compare home loans online
To help you find the cheapest and best value loan, compare home loans online at financial comparison websites, such as RateCity. Search through hundreds of mortgages from over 100 lenders all at your finger tips. Always read the product disclosure statement (PDS) before signing anything.