Like shopping for the perfect home, there are a lot of features to consider when seeking the best home loan for you. Your home is a direct result of your home loan so it’s imperative to place as much importance on finding a loan that fits your budget and lifestyle, as it is to find your ideal home.
Be confident you can secure your dream home with the right home loan by following these five steps.
1. Compare intro loans to variable loans
Intro or introductory rate home loans are normally offered by lenders to first home buyers because of their lower interest rates for usually the first 12 months. While an intro rate, otherwise known as a honeymoon rate, can be a great way to ease into your home loan repayments, you have to ask one important question before signing on the dotted line. What is the revert interest rate? At the end of the intro period the rate will revert to a higher variable rate for the rest of the home loan term so it’s important to make sure that rate isn’t too high.
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.
2. Decisons, decisions: Fix, variable or split?
This is often the hardest decision to make as knowing if, or when, to fix your home loan can ultimately come down to a gamble. If you’re a betting man, the general rule is; the best time to fix is when the gap between fixed and variable rates is close or less than 1 percent. Or when rates are lower than normal it can also be a good time to fix.
If you’re stuck, torn between variable and fixed, why not consider splitting the 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.
3. Features matter
There are a few common features that come with most home loans but don’t overlook them. Some features offer you much greater flexibility and can save you money.
Here are a few on the most common home loan features:
- 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’re allowed to make extra repayments to pay off your loan quicker
- 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.
4. Search 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.
If you don’t have the required LVR of your chosen lender you may have to pay lenders mortgage insurance which can be costly. It’s important to save as big of a deposit as possible to save on these extra charges and expand your home loan options.
5. Compare home loans online
Comparing home loans has never been easier. Enter a few details and click a few buttons and you can instantly compare some of Australia’s best home loans in one place. Now that you are armed with the know-how, start your home loan search by using the home loan comparison tool and mortgage repayment calculator. Make sure you always read the product disclosure statement (PDS) before signing.