10 steps to finding the most suitable home loan
If choosing the most suitable property is the ‘biggest’ decision a potential property owner will make, choosing the most suitable lending institution and home loan can also be a daunting process.
Here are 10 steps that you should follow when looking for a loan:
1. Supporting documentation
In the majority of cases, lenders will require evidence of income (normally a letter from your employer), demonstration of a genuine savings pattern and - depending on the type of loan - other documentation to verify particular details of the loan application.
2. Borrowing capacity
The amount you can borrow (against your property) will vary between lenders. Visit our calculator to know how much you can borrow.
3. Additional repayments
Bulk payments and regular extra contributions will reduce the term of the loan and save you money in reduced interest. Some lenders charge penalties for making additional repayments on top of the minimum required amount, so be aware of this.
4. Ability to ‘split’ loans
Structuring your home loan on a split basis enables you to take part of the loan at a fixed interest rate and therefore eliminate some of the risk in a rising interest rate environment.
5. Redraw facilities
Ideally, you want a lender that will allow you to redraw any excess payments (as long as you are not in default). The amount of times you can redraw without incurring penalties varies between lenders.
6. All-in-one versus offset accounts
An offset account is one that has your savings account linked to your mortgage in such a way that the interest earned on your savings is applied to reduce the interest on your mortgage. On the other hand if you have well-organised finances, you can maximise your opportunity to reduce the principal, by having your salary paid into your loan account.
7. Line of credit
This is an agreed flexible loan arrangement with your lender with a specified maximum. It operates on a similar basis to a credit card but is linked to your housing loan. This facility can be used at your discretion for a variety of purposes.
8. Switching
Read the fine print of your contract to find out if you can swap loan products to take advantage of any new deals, and check for costs involved.
9. Portability
If you sell before the mortgage is completely paid off, it will be more economical if you can transfer the loan to your new property.
10. Mortgage insurance
Lender’s mortgage insurance is there to protect the lender and is not able to be negotiated. General mortgage protection insurance for yourself is not compulsory, and you will have to decide if you feel you need it or not.
Contact your Mortgage Choice broker to help you to find the home loan that suits your needs.