Finding The Best Home Loan

Getting a Home Loan is a big commitment, so it’s best to go in eyes wide open with all the facts

A home loan is one of the most serious investments a person can make.

While online rate comparison tools have made looking for a loan easier than ever, it still takes time to work out what the best option is for you. Here are five expert 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 typical $300,000 loan by around $2,000.

When you are calculating how much to borrow, don’t use current interest rates.

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. For example, crunching the numbers shows that on a typical $300,000 home loan, the difference between the cheapest and most expensive home loans on the market adds up to over $4,000 each year in extra costs. Over 10 years that totals a whopping $40,000.

These days it’s easy to research home loans online and with comparison sites you can literally compare the market at the click of a button so use technology to your advantage.

3. Consider your individual circumstances

While you’re conducting research, make sure you consider your individual circumstances. Consider whether you would like an interest only loan, or a principal and interest loan.

For example an interest only loan should only be considered for investment property loans and principle and interest loans should be used for owner occupation purposes so that you can own your home earlier.

Its a good idea to learn about comparison rates, borrowers need to check that their home loan is competitive on the fee front. The average upfront fee you will pay is $500, but some of the best value loans on the market that can negotiate these upfront fees.

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.

If you’re searching for something as important as a mortgage, and a comparison rate gives you a chance to level the playing field, you really must pay attention

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.”

5. There’s a lot more than the Big Four Banks

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.