With so many mortgage products to choose from, finding the right home loan for your needs can be a pretty overwhelming experience.
That said, choosing the right home loan is also incredibly important as it can have a significant impact on your bottom line and future financial prospects.
So what can you do to ensure you receive the best loan for your needs both now and in the future?
Thankfully, there are a few tips you can follow and a few things you should consider to ensure you end up with the ideal home loan for you and your future financial needs, including:
- 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.
- Borrowing capacity.
The amount you can borrow (against your property) will vary between lenders. Knowing what your borrowing capacity is will out you in good stead when buying a home and choosing the most appropriate home loan product for your needs.
- 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 it pays to research the different polices for each lender before opting for one over another.
- 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.
- 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, so research this before deciding on one particular lender.
- 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.
- 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.
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.
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.
- 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.
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