24 Nov 4 Tips for Finding the Perfect Mortgage Fit
Home loans! The topic on everyone’s lips in this market. And my goodness, there are so many providers, options, rates and offers out there at the moment it’s enough to make your head spin.
When looking for a new loan or reviewing your current loan(s) the purpose of the funding (personal, investment or business) means that different facilities will be tailored for these purposes. So let’s take an introductory dive into the world of loans! You might want to consider the following…
1. Variable or Fixed?
The risk with variable loans is that interest rates and repayments may increase or decrease at anytime – this can leave you exposed if rates start climbing.
The other option is to fix which could offer you protection of up to 5 years. Also, fixing your loan can offer you the option to pay your interest payment annually in advance rather than at the end of each month, which could help with budgeting and your tax planning. However, fixing your loan may limit the amount that you can pay extra into the facility and reduce the benefits from your offset account.
Of course you could opt to have the best of both worlds and have part of your loan fixed and part variable. Hedging your bets, in a way.
2. Basic or Professional Package?
Basic loans are normally on lower rates and fees and offering limited features and facilities. That makes these loans ideal for investors or first home buyers who don’t want anything more than a home loan. They’re your cheap and cheerful loans, functional and getting the job done with no bells and whistles.
Professional Packages are for borrowers with borrowings generally over $300,000, who are looking to bundle their other banking facilities into one package fee while obtaining significant discounts on their home loan. These are ideal for home owners with multiple accounts and investors with multiple loans.
3. Interest Only or Principle and interest?
Electing to pay interest only offers you the flexibility to pay the minimum interest repayments for a period of up to 5 years, however choosing this option only could limit your borrowing capacity when you apply since you might be assessed on whether you can repay the loan over the shorter principle and interest period.
Applying for a principle and interest may limit your flexibility, for instance if you pay a large lump sum payment your repayments may still remain the same it is only the expected time that you have to pay off your loan will decrease. A number of lenders are now offering lower rates to pay principle and interest so it is worth considering for home owners.
4. Offset or Line of Credit?
An offset account is a separate bank account linked to your home loan. Any funds sitting in this account reduces your interest cost while still offering you access to these funds. This feature is helpful if you are a home owner looking to pay off your home loan sooner or an investor looking to part your funds in an account.
A Line of Credit is an all-in-one account offering a credit limit and direct access to the account for all transactions. This account is like a financial hub to manage your finances and implement debt recycling strategies with your financial planner. On a Line of Credit only interest is charged to the account. Any additional and lump sum payments reduce the balance of the loan and interest charged relatively, which is ideal for professionals with high incomes and surplus looking to build up their equity and wealth quickly.
Like all big purchases, due diligence, research and quality advice are recommended when sourcing home loans. Hopefully these tips will point you in the right direction but we’re always here to help you.