Key Features of the Best Home Loans
Buying a home is probably the biggest purchase you’ll ever make. It’s important to consider every aspect of your home loan and not leave anything to chance. Here are some key features that can help you choose the best home loan.
Competitive Mortgage Rate
If a home loan provider gives you a fixed rate, you know precisely what your monthly repayments will be. Variable rates can go up and down, increasing and reducing your repayments.
Mortgage rates can be as low as 3.5% and easily climb past 4%. Using a mortgage calculator can help you discover what an impact different rates can have.
Even a 0.05% difference can genuinely increase your monthly repayments. On a $550,000 mortgage, it can mean a difference of $80 per month (assuming the interest rate and minimum monthly repayments remain the same and there are no ongoing fees).
Everyone wants low interest rates on their mortgages. While the interest rate is often the key factor when choosing a mortgage, it’s not the only one.
No Fee for Extra Repayments
If you make extra payments, you can pay off your mortgage more quickly. Unfortunately, many lenders punish mortgage holders for extra repayments by charging fees.
Let’s assume you have a $350,000 home loan for 30 years. If, after 5 years, you increase your monthly repayments by $250/month, you can save over $40,000 in interest over the life of the loan (again, assuming the interest rate and minimum monthly repayments remain the same and there are no ongoing fees).
However, extra payment fees can discourage people from making quicker payments. If you plan to make extra payments, a no-fee mortgage can help you repay the loan faster.
Some home loan providers will allow you to withdraw your extra repayments. For some home owners, it can be a valuable financial safety measure.
Let’s say you’ve been making extra repayments on various occasions, but you’re now short on cash. With a redraw facility, you can withdraw the extra repayments you’ve made.
Be warned, however, that the home loan provider may adjust the interest, so you may be paying more on future payments.
To avoid this, read all the small print on your mortgage agreement documents or consult a licensed professional to make sure you know the terms and conditions of your mortgage.
Some lenders allow you to bring your mortgage with you when you relocate to a new property. This can mean considerable cost-savings when you sell one property and buy another. You are less likely to incur fees and don’t have the headache of applying for a new mortgage.
Paying off one mortgage early and starting a new one for a new property will likely cost you money. But some home loan providers don’t mind if you switch a loan from one property to another.
Look into your loan portability if you think there’s a chance you may relocate within the term of the mortgage.
Mortgage Offset Accounts
Some home loan providers offer mortgage offset account options. This can mean considerable savings for the duration of your mortgage.
The balance in your offset mortgage savings account is set against the loan principal. The home loan provider then recalculates and reduces your interest payments accordingly.
For many new homeowners, this can be a good way to save money.
The information in this article is general in nature. Please seek advice from a licensed professional when making financial decisions.