Finding the best home loan deal is just like shopping for a new car. You can go for the one that has all the bells and whistles or you can choose one that doesn't have many features at all. You can go for the cheapest price but you need to be aware that there may be a few catches along the way that could end up costing you in the long run. At the end of the day it all comes down to a few critical factors - your budget and how disciplined you are with your money. Both of which will determine the type of home loan that will suit you the best.
Take for instance, a person who has a fairly large amount of money left over each month after all their expenses, they may be better suited to taking out a line of credit type home loan (where you can pay as often and as much you like) or an all in one type facility that is linked to an offset type account. These type of loans are generally suited to those who are also quite disciplined with their money and can resist the temptation of having ready access to a lot of money.
For those who have only a small amount left over each month (if that at times!) they may be better off with a combination of a fixed and variable loan or in a low interest environment (as we are now) fixing the entire amount for the first few years so that they have an element of certainty of how much they have to repay each month. This also means that they are partly protected against increase in repayments should interest rates increase. At present some lenders are offering a three year fixed rate which is less than the current standard variable rate.
1. Plan out the next few years - Before jumping into a particular loan think about where you are headed. Are you planning to start a family? Do you expect your income increase or decrease over the next few years? Will you want to do some renovations down the track? By knowing the answers to these questions or at least having them in the back of your mind will help determine they type of loan you ultimately get.
2. Super low rate loans may not be the best option - with rates being at 30 year lows the difference between a great loan rate loan and an average one is not that much. Therefore you need to be very careful with the potential hidden traps of a really low interest rate deals. While it may appear to be saving you thousands of dollars there may be a number of hidden fees and restrictions on that particular loan that could end up costing you if you decide to change loans a bit down the track.
3. Look for flexibility - All good plans can come unstuck so rather than locking yourself into a tight deal just because it's a low rate look for loans that offer you the facilities like being able to make extra repayments (just in case you get a bonus or a pay rise). Being able to make redraws (just in case you want to buy a new car or you need to make emergency repairs to your home), being able to fix the rate on a portion of the loan, or refinance to another loan if need be. Most fixed term and some basic loans don't allow you to make additional repayments, or if they do they charge a penalty for doing so. Some lenders may have a limited range of loan products so your initial deal may be good but later if you want to change your loan around that lender may not be as competitive.
4. Understand the bells and whistles - there are a number of different features attached to loans and sometimes the more features the greater the cost to you either in the interest rate or in the fees and charges. Once again pick a loan that fits with the way you handle your money. If you need your loan linked to your credit card, internet banking and an ATM/EFTPOS card then choose a loan that allows that. Some lenders don't offer all of these together and the last thing you want is to have to fiddle about moving money from account to account which will be both time consuming and costly in term of extra account fees.
5. Look at the total costs of a loan - There are a number of costs associated with setting up a loan. These include for example application fees, attendance fees, valuation, legal fees and mortgage insurance. Make sure that you get a full run down of these fees because if you are not careful you could end up paying a couple of thousand dollars just to set up a loan. Speaking of fees, always ask if there are fees or penalty payments for paying back your loan early (some lenders call these deferred application fees). Also ask if there are any monthly account keeping fees or extra fees for switching between different loan types (eg moving from fixed to a standard variable).
6. Always get a specialist to help - it is always good to understand the above points however I always recommend that you talk to a mortgage broker (in fact speak to two) and get them to help you find the best deal. They have a much better knowledge of what available in the market and they will be able to do all of the running around. At the end of the day however the more educated you are the better you can tell them what you want and the better the type of home loan package you end up with.
