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Your property is probably your largest asset and you owe it to yourself to ensure you have the best mortgage underpinning it.
Ensure you are paying the lowest rate you can, and investigate other types of mortgages that might suit you better.
The huge choice is also making it pretty confusing, with lots of lenders, a wide range of interest rates and fee structures that can be difficult to understand.
The first stop is usually the interest rate. As with any loan, checking out the interest rate is a priority for new borrowers. It’s a good idea to focus on obtaining a low interest rate but also on having enough flexibility to pay off the loan faster if you can.
Two important loan features to look out for are the option to make extra repayments and access to offset and redraw facilities, if you need them.
Sophisticated and competitive
The home loan market has become increasingly sophisticated and competitive and prospective home buyers need to be wary of being taken in by gimmicks and industry hype.
Be wary of “honeymoon” loans that attract people with very low interest rates but then revert to much higher rates once the short introductory period is over.
Get the shortest loan term you can afford. Your loan term is how long you have to pay off the loan. It impacts the size of your mortgage repayments and how much interest you’ll pay. A shorter loan term – such as 20 years – means higher repayments, but you’ll pay less in interest. A longer loan term – for example, 30 years – means lower repayments, but you’ll pay more in interest.
Most popular loan
Principal and interest loans are the most common type of home loan. You make regular repayments on the amount borrowed – the principal – plus you pay interest on that amount. You pay off the loan over an agreed period of time – for example, 25 or 30 years.
With variable (principal and interest) loans, the rate of interest you need to pay to the lender for your home loan can be subject to the movements of the interest rates set by the Reserve Bank of Australia. Essentially, if the Reserve Bank of Australia moves the rate up or down, your lender is likely to follow suit by passing on the changes.
Lock-in the rate now
A fixed-rate loan is one that allows you to lock-in the current interest rate at the time of settlement. You may want to fix a rate for up to five years, although the lifetime of the loan may be 30 years.
When borrowing money from a lender or bank, you can choose to pay just the interest on the loan – an interest-only home loan – or both the interest and the principal – the actual amount borrowed. If you choose to pay only the interest on the loan, your repayments will be much lower freeing up cash for things like renovations. However, a lender will always assess your ability to pay back both interest and principal to qualify for the loan as interest-only loans have a limited life span of up to five years.
There are other options such as a bridging loan, a short-term loan helping you navigate the awkward time between buying a new property and still looking to sell your existing property; and a construction loan that helps meet the needs of ongoing payments throughout the construction process.
Seek advice
Overall, take a careful look at the loans around to make sure you get one that suits you.
Use comparison websites and other online tools that allow you to compare products quickly.
As always, it’s extremely important to seek independent and professional advice that can assist depending on your circumstances. So, find a finance broker or bank that will provide you with such information.