The elusive “cheapest mortgage” spurs home loan hunters to scramble the market for weeks before settling on a good deal. But while it’s easy to compare interest rates, few learn what it really takes to find the cheapest mortgage until they’re paying more than they have to.
The first thing to look for in the search for the cheapest mortgage is the rate. For instance, on a $250,000 home loan over 25 years, 1 percent could make the difference of almost $50,000 in repayments over the life of the loan.
However, what could make a home loan even cheaper is how quickly you pay it off. For example, on a $250,000 loan over 25 years at a rate of 7 percent, total repayments may exceed $530,000. Compare this to an 8 percent loan that you pay off in 15 years, with total repayments of around $430,000. Even with a higher interest rate, paying off the loan sooner could save you $100,000 in repayments.
Another neat trick is to pay your mortgage weekly instead of monthly, which over time can save you a few thousand dollars through compounding.
What you need to know
One thing to be aware of when hunting for the cheapest mortgage is the introductory rate. These can seem like the best deals in the market, with low rates for the ‘intro period’. However, the bite can come when customers don’t satisfy certain terms and conditions, meaning that slip ups could force you into much higher rates for the rest of your loan.
You should also think carefully about the features and services you will need for your loan. For example, if you believe that you will need to often suspend or make extra payments, having a loan that helps you avoid fees for that can save you hundreds of dollars each time you skip a payment.
And be aware the cheapest home loan for your neighbour may not be the home loan deal for you. Consider your financial situation and history with loan repayments before you sign off on a flashy promotional deal. Research the cheapest rates today to get a feel of the terrain, and hunt until your heart’s content to secure that perfect home of yours.
Use the RateCity home loan repayment calculator to work out your monthly payments.