We know that finding the right home loan can be challenging. There are hundreds of products on the market and seemingly endless features you can choose to tailor a bespoke home loan for your unique financial needs and goals.
Whether you’re shopping around for your first home loan, or wondering if the mortgage you currently have is the right one for you, we break down some of the important things you should consider:
If you’re looking to buy your first home or investment property, you should aim to have 20% of the purchase price of the property saved. Borrowers with a deposit below 20% may be required to pay Lender’s Mortgage Insurance (LMI), or seek financial support from a guarantor.
First home buyers who do not have a sufficient deposit may have to pay Lender’s Mortgage Insurance. LMI is usually a one off payment at the time of loan settlement. The insurance is in place to protect the lender in the event that you default on your loan. While LMI will cost you, it can get you onto the property ladder sooner rather than later.
Principal and Interest vs. Interest Only Loans
A home loan covers the cost of buying the property as well as the interest the lender charges you for the loan.
Two of the most common loan types are Principal and Interest Loans and Interest Only home loans.
With a principal and interest loan, your repayments are divided up into two portions. Some is used to pay off the interest due on your outstanding loan amount, while the remainder goes towards paying off the outstanding loan amount itself.
On the other hand, an interest only home loan, means you only pay the interest charged on the loan. In other words, throughout the entire interest-only period, you do not pay down the principal debt at all.
If you are coming out of a fixed interest period, you may want to speak to your local mortgage broker to ensure that your home loan structure is still right for you.
It is important to note that the lowest interest rate may not be the best option for you.
Interest rates can vary significantly between mortgage products and lenders. Some home loan products will carry a higher interest rate because they have added features such as an offset account or redraw facility.
That being said, if you have been in the same home loan for some time, you should check to see if you have a competitive interest rate.
Additional home loan features may come at a cost to you but can provide flexibility in the long run.
An offset account can help reduce the interest paid on a mortgage each month. Simply put, an offset account is a savings account associated with your mortgage. Any funds you deposit into the account will help offset the amount of interest you pay on your loan.
A redraw facility will allow you to access additional repayments you’ve made on your home loan. If you’ve made significant additional contributions to your mortgage, you might be able to redraw the funds to finance a renovation or upgrade your family car.
A qualified mortgage broker can help you determine the right loan structure and features for your individual needs. Whether you’re a first home buyer who needs help determining your borrowing power and serviceability, or a borrower who’s looking to refinance, your local Mortgage Choice broker can help you.
At Mortgage Choice, we will do all the legwork to find you the right loan. Best of all, our brokers are all paid the same rate of commission regardless of which lender you choose to go with.