Although still not out of the woods in terms of the global crisis and pandemic, there are positive signs of economic growth as life starts to return to normal. New loan commitments rose by 8.9% for housing loans as July 2020 data released by the Australian Bureau of Statistic demonstrates. The question is what do you need to consider in order to choose the right home loan for you?
Before speaking with your mortgage broker in Melbourne, make sure you have the following 6 points clear in your mind to help make the right choice.
Check the interest rates involved
Remember to look at the terms and conditions especially around the interest rates being advertised. Usually a lender will show the advertised, current rate plus a comparison rate and the advertised rate does not include what the charges or fees will cost you. The comparison rate will work out an example of what the cost on the home loan package would be if you took out a certain amount over a certain time period, and it does take into account as far as possible the charges and fees. Just like other businesses you may also find there are “special offers” to gain your custom e.g. fixed rates for the first year for example or a discounted rate for first time buyers. Reading the small print is really important, which your mortgage broker in Melbourne will point out to you.
Consider fixed term or variable loans
If you are looking for certainty with your cash flow so you know exactly what you are going to be paying out every month, a fixed term loan will give you that advantage. It does lock you into the one fixed interest rate so you could lose out if interest rates drop. With a variable loan, the amount fluctuates depending on the interest rate, so you need to think about your budget and cash flow situation to determine which will be the better choice.
There is also the option of splitting the loan between fixed term and variable, so it is important to review all choices with your mortgage broker.
Review the amount of deposit saved
This is going to bring a few things into play, depending on the amount of money you have been able to put aside for a deposit on a home. A lender is going to want to ensure that you are a safe pair of hands when it comes to lending you their money. The more you can demonstrate this by ensuring you have a good credit rating, good management of your budget and have set aside money for a deposit, will stand you in good stead. Lenders work on a Loan to Value ratio which is the percentage of the loan amount that you can borrow, and this percentage will vary so make sure you have checked this out.
Check if you need Lenders Mortgage Insurance
This is to protect the lender from losing out if you are unable to make your repayments. If your deposit is less than 20% of the amount you need to borrow, then you will have to take out Lenders Mortgage Insurance, so factor this into your budget.
What are the special features in each home loan?
Different loans will offer additional benefits to make them attractive to prospective buyers. These can vary from the ability to split the amount between variable and fixed terms, make additional repayments or lump sum payments and other features. If you think you may be in the position a few years into the loan to be able to pay some money back (via inheritance or an insurance premium that will mature, for example), look out for a loan that offers the option to do this.
What additional fees apply?
Don’t forget to check any “hidden” costs such as late payment fees or property valuation fees, early exit fees or application costs which may not be apparent at first glance. Ask your local mortgage broker in Melbourne to go through any additional charges or fees you may find yourself liable to pay.
This is going to be the most amount of money you borrow in your lifetime but armed with the above checklist and the support of a professional company, you will make the right choice to meet your needs and your budget.