5 Tips on getting the best Home Loan
A home loan is one of the biggest investments a person can make, and it still takes time to work out what the best option is for you. Here are five tips to ensure you are on track.
1. Know what you can afford
Interest rates may be low at the moment, but will you still be able to afford the repayments once they begin to rise?
The interest rate is by far the biggest cost of a home loan. As a rule of thumb, an interest rate difference of 1% will increase the annual cost of servicing a $100,000 of loan by around $1,000, so if you had a $400,000 loan then that would be a $4,000 per annum increase.
Don’t forget that when you’re calculating how much to borrow, you shouldn’t just use current interest rates. Instead you should stress test your borrowing capacity and consider what will happen down the track if / when interest rates go up 1% or 2% percentage points or more.
Do your calculations by including a buffer to make sure you can still afford to maintain your repayments if rates do rise a couple of percentage points.
2. Do your research
Finding the best home loan can often come down to making sure you do your research on the options available and choosing wisely. Picking the wrong home loan could cost you tens of thousands of dollars in extra interest and fee charges.
These days it’s easy to research home loans online and with comparison sites like Mozo and Canstar you can literally compare the market at the click of a button so make sure that you use technology to your advantage.
If you don’t have time, then make sure that you engage a reputable mortgate broker to do the heavy lifting for you.
3. Consider your individual circumstances
While you’re conducting research, make sure you consider your individual circumstances. Talk to your accountant or financial planner to determine what entity names to put the property in, and whether you would like an interest only loan, or a principal and interest loan.
4. Understand Comparison Rates
The comparison rate is a government-mandated calculation that includes the interest as well as the loan’s main fees and charges in the one rate and hence more accurately reflects the true cost of a mortgage over the life of the loan.
Because all lenders have to use the same formula, the result gives a borrower the means to compare the true cost of a loan before they commit to it, and it gives some reality to the headline interest rate.
Once you have your baseline Comparison Rate, don’t forget to still haggle for a better deal. It’s becoming more common for lenders to waive the application fee’s or discount the interest if you put pressure on them.
5. There is a lot more than just the Big Four
The big banks and other major lenders commonly charge annual ‘package’ fees of between $200 and $400 a year for a discounted home loan package.
These sorts of packages can offer substantial discounts on the lender’s standard interest rates, particularly if you’re borrowing a large amount, but it always pays to compare package deals against the top low-rate loans from smaller lenders to see if you can get a comparable rate without the hefty annual package fees.