Long-term thinking needed on home loan
Because a home loan can be a long-term commitment, it’s important to think beyond the immediate time horizon when considering your home finance needs to ensure you end up with a home loan that has the ability to accommodate your future needs.
Life is full of change – much of it unexpected
While we certainly can’t foresee every potential change in our life and the impact this will have, it’s still possible to consider and allow for some possible changes and put strategies in place to manage these.
The average loan term with a lender is four to five years, and a lot can happen in this time. Just look at how different your own life is now compared with five years ago.
Anyone looking to take out a home loan should be thinking about the possibilities of the future and seeking quality advice from a mortgage broker about a home loan that will have the capability and flexibility to accommodate changes.
There are numerous significant life events that can impact on your home loan, including:
Having children – This can result in an increase in household expenses, and a decrease in income if one parent stays at home or reduces their work hours to look after the child or children.
Redundancy – It may take several months to secure a new job after having been made redundant, or it may be that the new job doesn’t pay at the same level.
Starting your own business – Depending on the business, you might require a lump sum to buy or get the business up and running, and it might be months or even years before you start to see a return on your investment.
Buying an investment property – You will need either a solid amount of equity in your home or significant savings for the deposit on an investment property and the lender might want to cross-collateralise, that is, use your home as security for the loan on the investment property.
Finding another ‘dream’ property – Despite never having any intention to move in the coming years, it might be that you one day see the house of your dreams and decide to buy it.
Anyone who could quite realistically be affected by one or more of these scenarios needs to be mindful of keeping their options open when taking out their home loan.
Plan to be flexible
There are no hard and fast rules or structures for best managing these scenarios, but it might be, for example, that a fixed or partially fixed home loan isn’t a good option for some people as it may result in substantial break fees if the loan is terminated early.
That’s why there is merit in working with an experienced mortgage broker when securing your home loan, to ensure the loan you end up with can cater, as much as possible, for any of these unexpected events.
A mortgage broker will have a good knowledge of the hundreds of home loan products on offer and will ensure that not only the product but also the structure of your affairs offers a degree of flexibility.