Deciding what property to purchase is hard enough. But even after you’ve found the perfect property, you’ve still got to select the right home loan!
If you’re in the process of getting a home loan, here are some questions that you may have:
How much should I be paying for the deposit?
Most lenders offer loans at different loan-to-value ratios (LVRs). This is the proportion of the loan amount that you can borrow from the lender. The amount will also help you determine how much you will have to be paying for the deposit.
Will I be needing Lender’s Mortgage Insurance (LMI)?
If you are opting for a deposit of less than a fifth of the total cost, you may be required to purchase lender’s mortgage insurance. This protects the lender in the case of you defaulting on your loan. It comes in the form of a premium payable on your part.
What are the additional fees that come with a loan?
Different loans come with different fees. It’s important that you take them into consideration because they will make a difference on the overall cost you will be paying. Here are a few that commonly come with home loans:
- Application fees
- Property valuation fees
- Annual fees
- Default fees
- Early exit fees
- Discharge fees
- Break fees
- Redraw fees
- Account-keeping fees
- Lender’s Mortgage Insurance (LMI)
Which interest rate will I be paying?
Most lenders display two different rates: a current rate and a comparison rate. The first one is usually the rate of interest on its own. It doesn’t take into consideration any additional fees you may be paying.
The latter rate takes fees into consideration. Ultimately, it gives you a better estimate of how much you will be paying for a particular amount over a particular period.
Some lenders also offer introductory offer rates. These are relatively low rates that are offered at the beginning of your loan. They usually increase after some time, so be sure to consider the comparison rate to get a better idea of what you will be paying after the introductory period.
How do I know what loan type to choose?
There are three basic types of home loans: fixed, variable, or split. It’s important that you know the pros and cons of each so that you can determine what will work best for your particular situation. There is no one-size-fits-all loan, so it’s important that you know what you need from a loan. That being said, split loans are often good choices because they offer you the ability to fix a certain part of your loan amount while leaving the other part variable.
What features should I choose?
Different loans come with different features. Just as with loan types, the features that you should choose will depend on what you want from a home loan. There are several features commonly available, such as an offset account, a redraw facility, extra repayments, lump sum repayments, and even pre-approval. These things will certainly have an effect on your loan and may even affect the amount you ultimately pay.
Although loan features are certainly important, your home loan will be the most impacted by your interest rate. It’s crucial for you to choose a loan with a competitive rate. Otherwise, you’ll be paying a lot more than you should be.