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The Best Home Loan
Finding the best home loan to suit your budget and lifestyle is important. Below are five steps that you can follow to help you find the best home loan so you can own the house of your dreams sooner.
- Compare intro loans to variable loans. Intro or introductory rate home loans are normally offered by financial institutions to first home buyers because of their lower interest rates for usually the first 12 months. Be careful however, as the catch with this type of loan is that while it may be attractive to begin with, at the end of the intro period the interest rate reverts to a higher variable rate for the remainder of the term. The benefit of variable rate home loans is that when rates decrease so should your repayments, which allows you to save more. However when the rates increase so will your repayments, making this type of loan harder to budget compared to a fixed loan. When comparing the two, use the comparison rate instead of the advertised rate as it includes some upfront and ongoing fees and averages out the interest rate over the entire loan term.
- Fix, variable or split? Knowing what type of loan to go for can be difficult; however as a general rule the best time to fix is when the gap between fixed and variable rates is close or less than 1 percent. When rates are lower than normal it can also be a good time to fix. Or if you are not sure, perhaps consider a split loan. A split home loan allows you to divide your loan into two or more portions, for instance half fixed and half variable. The main benefit of this type of loan is that if there are any rates increases only half will be affected but if rates decrease only half of your repayments will too.
- Choose the features. When looking for the best home loan, some common features available to choose from include:
- Lump sum repayments - Allows you to make bulk payments
- Redraw facility - To have access to the extra repayments that you made to your mortgage
- Additional repayments - If you are allowed to make extra repayments regularly
- Mortgage Portability - if you can transfer the loan for your current home to another property. This can sometimes reduce fees such as establishment fees of a new loan.
- Mortgage offset - This is a transaction account linked to your mortgage and is offset against the unpaid balance of your loan, which reduces the amount of interest payable.
- Check LVRs. Loan-to-value ratios or LVRs is how much a lender allows you to borrow as a percentage of the value of the property. For example, for a loan with an LVR of 0.90 or 90 percent, to borrow $300,000 you can borrow up to $270,000 and will require a minimum deposit of $30,000. It is good to have a specific deposit or LVR in mind, so that you can restrict your search by looking for home loans with a suitable LVR. Be aware that some higher LVR loans may have higher rates and fees than lower LVR loans.
- Compare home loans online. In order to find one of the cheapest and best value loans, compare home loans online or check out the table below which lists some current variable rate home loans. Make sure you read the product disclosure statement (PDS) before signing.
