Buying a home is quite possibly the biggest financial decision you will ever make. Not only do you have to find a reasonably priced property that best suits your lifestyle, you also have to choose the right home loan to go with it!
There’s not a day that goes by that you don’t see a bank offering a seemingly “buy now or miss out” home loan with a host of features that will utterly change your life.
Ok, that’s a bit of an exaggeration, but from fixed versus variable interest rates and offset accounts, to interest only and line of credit, how do you know which loan features will work best for you?
It’s a debt that you’re likely to have for 25-30 years so you really only get one shot to get your mortgage right.
Do it right, use a broker
Shopping for a home loan is nowhere near as easy as some people think it is because there is more to consider than just interest rates according to Home Loan Experts senior mortgage broker William Thai.
“As a broker, looking carefully at your situation and recommending you products from a range of lenders is what we do everyday,” he says.
Because of our credit expertise and relationships with the credit departments of the major banks and lenders, we can negotiate a great deal for you in a fraction of the time that it would take you to do it yourself.
Best of all, for most loans, our mortgage brokers do all of this for free! Call us today on 1300 88 743 or complete our free assessment form so we can find the right home loan for you.
Getting approved can be a b@*!#
The most difficult thing when shopping for a home loan is finding a lender that will actually approve your application. Sounds simple, right?
Famous last words aside, not many people are aware that between banks, non-banks and non-conforming lenders, each has their own lending policy. With more than 50 lenders in Australia, that’s a lot of policies!
Even if you’re willing to roll up your sleeves and spend hours doing your homework, policies are changing all the time and the banks don’t let the public know what they are anyway.
Quite simply, the only way to know if you qualify is to actually apply.
Not only does this take a lot of time and effort but if you don’t get approved you’ve just added an unnecessary enquiry to your credit file. This can work against you when you decide to apply with another lender.
A broker, on the other hand, can run scenarios past a bank’s credit managers so they know for sure that your loan will be approved.
Do you know what you want from the loan?
It’s a fair question that you should be asking yourself after you’ve found a list of lenders that will approve your loan.
For some people whose situation is out of the box, getting their loan approved is the priority, even if it means not being able to get the sharpest rate on the market.
For example, someone with bad credit just wants to stop renting and get into their own home. They will be willing to pay a slightly higher rate for a few years if it means they can own their own home.
Depending on your situation though, you may benefit from having extra bells and whistles with your mortgage.
- Do you want to make extra repayments?
- Do you want a fixed or variable rate?
- Do you want branch access? (you’re not going to find an AMP branch but Commonwealth Bank branches are everywhere!)
- Is it really all about the interest rate, i.e. is getting a good price the most important thing to you?
“Once you answer those questions you can really marry it up with the features that you want in the home loan”, William says.
“If you don’t, you’re going to be stuck with a bank or product that really doesn’t suit what you wanted to do in the first place.”
Will you actually benefit from a pimped out loan?
Generally speaking, the more features that a loan has, the more it will cost you. However, there can be benefits to certain home loan features depending on your situation:
Arguably the most popular option in Australia at the moment, this home loan comes with an offset account, an interest rate discount, discounts on insurance, a free credit card and a free transaction account.
The offset account itself is great for anyone who has a bit of money leftover after every paycheck and can afford to make extra repayments.
“Even something as little as an extra $200 a week adds up over time and you could potentially save a few thousand dollars in interest at the end of each year,” Will reveals.
Similar to an offset account, people who can make extra repayments will benefit from this feature. The best part is that if you need cash fast for an emergency you can redraw those extra funds because it’s still your money!
Good for borrowers who aren’t looking to make extra repayments, refinance their loan or sell their property within the fixed period.
You also have the certainty of knowing what your repayments will be for 2, 3 or 5 years depending on how long you decide to lock in the good times of a low interest rate.
Despite the $10,000 a year cap on extra repayments for fixed loans, we know lenders that can allow you to make even more in extra repayments!
Although it seems like you’re at the mercy of interest rates when they rise, variable loans are actually a safe option.
Not only do you have the ability to make unlimited extra repayments, you can always decide to fix your loan down the track. With a fixed rate though, you can’t go back to variable.
“This is my personal favourite,” William says.
“By having a percentage of your loan variable and a percentage of your loan fixed, you get the best of both worlds.”
Despite interest rates being so low at the moment, you need to consider whether you want to gamble your loan on the current rate. With loan splitting you not only take advantage of low interest rates but you also have the ability to make unlimited extra repayments.
Line of Credit
If you have equity in your property and you want to turn the equity into money then line of credit may be a good option for you. Specifically, asset rich and cash poor individuals like property investors can free up that equity so they can purchase things like another house, a car or even a holiday.
This option is popular among property investors because it allows them to minimise their repayments so they can use that extra cash for other investments. This is opposed to principal and interest repayments, a common option for owner occupiers.
Not sure where to start?
As you can see, finding the right home loan takes a lot of work and effort unless you have the expertise of a qualified mortgage broker on your side.
Our brokers are credit experts with years of experience not only in broking but also in working in the credit departments of the major banks as the person actually approving and declining loans!
In addition, Home Loan Experts has over 40 lenders to choose from as well as a thorough knowledge of the suite of home loan products on offer from each lender.
Call us on 1300 889 743 or complete our form for a free assessment so we can do all the hard work and recommend the right home loan for you.