Congratulations. You’ve saved up enough money for a deposit and decided you’re ready to buy your first home. This is when the real work begins.
In your journey over the next few months and years, you’ll be greeted with several decisions that will ultimately determine how long you spend paying off your loan, how you structure it and how stressful the process is.
However, if you set some goals and rules early and then systematically tick them off, it can be fairly seamless.
Have I got a competitive interest rate?
While the Reserve Bank sets the national benchmark for interest rates, the variance between lenders can be significant. “Shopping around for the best rate only takes a few minutes with the intel available online, but could potentially save you tens of thousands over the course of your loan,” says Phillips. A home loan comparison calculator shows the substantial impact a small interest rate change could have on your repayments.
Am I going fixed or variable?
Whether to go fixed or variable is a personal choice, but an important one, says Phillips. “Fixing your loan helps you to sleep at night if you’re worried about future interest rate rises,” he says. “However, if you expect that rates will fall further, you may be able to get a better rate by going down the variable path.”
Am I an owner-occupier or investor?
There was a time where this didn’t matter too much, but in the last year we have seen a growing variance between owner-occupier rates and investor rates, as the regulator tries to take a bit of heat out of the housing market, says Phillips. “However, there are still competitive investor rates out there if you shop around,” he adds.
How long do I have to pay off the loan?
“Your loan timeline has a number of implications too,” says Phillips. “There are a few things to consider when deciding how long your term should be. You must decide whether you have the capacity to pay off the loan in a shorter period of time,” he adds. A shorter loan term will reduce the amount of interest you pay in the long run.
Do I need an offset account or redraw facility?
“An offset account is a savings account attached to your loan, which can help you pay off your loan quickly, but you may also have to pay a higher rate on your offset mortgage,” says Phillips. “A redraw facility lets you borrow money back that you’ve already repaid.” Again, it comes down to personal circumstances and what’s best for you, he adds.