4 Tips for Choosing The Right Home Loan
Choosing the Right Home Loan Could Save You Thousands of Dollars
While your buyer’s agent in Sydney can help you find the perfect home, you need to make sure you have the money to pay for it. That’s where securing a home loan comes into play.
Australia has many lenders, all of whom offer an array of home loan products. Choosing the right one will often lead to you saving thousands of dollars on the mortgage over its life.
Your buyer’s agent in Sydney is always there to help, but here are our tips for choosing the right home loan.
Tip #1 – Fixed vs Variable
“Do I want a fixed or variable rate loan?” is the biggest early question you need to ask yourself when shopping for a mortgage. The choice you make depends on your circumstances.
A fixed rate loan allows you to take advantage of current interest rates, but it ties you into that interest rate for several years. You end up paying more interest than you might have with a variable rate loan if the national rate decreases. Beyond that, you’ll have to pay break costs if you end the loan early.
Variable rate loans offer more flexibility and allow you to take advantage of fluctuating interest rates. However, those changing rates can come back to bite you if the national interest rate increases.
Tip #2 – Be Aware of the Fees
Your buyer’s agent in Sydney should make you aware of some of the extra fees you’ll have to pay when taking out a home loan. Disregarding the interest rate for the moment, you will need to pay several establishment and settlement fees to your lender.
This is where the loan’s comparison rate can help you. This figure takes many of the extra fees into account, providing an adjusted rate based on the charges you face plus interest. Use the comparison rate to compare different products, as a low-interest rate may not always save you as much as it might seem.
Tip #3 – Understand Lender’s Mortgage Insurance
Lenders often take out Lender’s Mortgage Insurance (LMI) on your loan if you can’t offer 20% of the home’s value as a deposit. LMI protects the lender in case you default on the loan. Furthermore, you may still have to pay the debt later on if you do default.
You can avoid this if you pay a higher deposit. At the very least, try to pull your deposit up to the 10% mark. This lowers the LMI and can save you thousands of dollars compared to a 5% deposit.
Tip #4 – Look at the Extras
Many home loan products come with added extras you can benefit from over the course of the loan. For example, a redraw facility will allow you to make extra payments, and to draw those extra payments back if you need them in an emergency situation.
Some lenders offer “repayment holiday” periods, which you can use if you run into financial hardship. Beyond that, an offset facility allows you to use your savings to lower your interest payments. Try to find a loan that has extra features you might use.
Finding the right home loan sets you up for the future. It also places you in a good position during property negotiations. Contact one of our buyer’s agents in Sydney if you want to learn more about the ways to save money when buying a home.