6 Helpful Steps to Follow When Choosing a Home Loan
When choosing a home loan, your affordability should be at the front of your mind, we recommend you should look at what you can afford each month. Understanding how much of your wage is going to go to cover the monthly repayments for your home loan is crucial and it is often quite different from what the banks / lenders think you can afford.
Variable or Fixed
Define what is most important to you i.e. Do you prefer the certainty that a fixed rate loan offers or are you more risk orientated and are happy to ride the fluctuating interest rate rise and falls?
How flexible do you require your loan to be? We live in an ever-changing world and nowadays most people need a bank/lender and their home loan to be flexible enough to keep up to speed with their new ways of spending, viewing and accessing their money.
Is the bank going to allow you to grow and will they work with you as you evolve through life and your financial needs and goals change?
How long will you need the home loan? The standard term for a home loan in Australia is 30 years. You may not need a 30-year term, however you may not qualify for the mortgage if the term is shortened. Therefore, if you want to pay the loan off sooner does the bank / lender allow you to make additional payments without penalty?
Do you require an Interest Only Loan? Most lenders offer Interest Only Loans. The normal Interest Only period is 5 years, which means it can be Interest Only for 5 of the 30 years. However, some Lenders offer 10-year Interest Only Loans. When taking out an Interest Only Loan, we recommend you consider the long-term ramifications. For example, if your loan is Interest Only for 5 years, then once the loan converts to Principal and Interest (P&I) your repayments will increase significantly as the principal payments will be based on the remainder of the loan term i.e. 25 years.
You may be considering fixing the mortgage. Most lenders offer 1, 2, 3, 4 & 5 year fixed terms. Fixing your home loan can be a great way to avoid interest rate hikes. A fixed loan will give you consistency in your repayments and could save you a small fortune.
However, again we recommend you consider your short-term plans before you choose to lock in your interest rate. You will lose all flexibility and could be penalized if you wished to break the loan during the fixed term.
Understand your own spending habits.
Are you a spender?
Are you a saver?
Do you need to make it difficult to access your money in order to save your money?
These are all important questions that you need to answer before you choose your next mortgage.
Declan Hanratty – Managing Director
M: 0409 089 456 F: 03 9416 1916 ABN: 19 880 907 430 POSTAL: PO Box 1551 COLLINGWOOD Victoria 3066 MFAA Membership No. 50217 Australian Credit Licence No. 383120 Credit Ombudsman Service No. 412201