October 14, 2014
You may have heard it said before, but the right mortgage for you is not necessarily the one with the lowest interest rate. We are constantly bombarded by lenders advertising their rates not products. Which would be fine if all loan products were the same.
You need to know you are comparing 'apples with apples'.
The simple fact is that no two loans are the same, even if they are from the same lender. And the differences don't just lie with the fees and charges.
Given that taking out a mortgage will most likely be the largest financial commitment you ever make, you need to ensure you are taking all the necessary steps. So what are they?
Your check list
- Write down a list of all the changes to your cash flow you expect over the next 5 years
- Decide if you are planning on making minimum repayments or planning on paying off the mortgage as quickly as possible
- Work out how much you have in your bank account month to month
- What else are you saving for, example a holiday or your children’s education
- Seek financial advice. Yes this does cost money, however a small fee when you consider potential tax deductions
- Understand how sensitive you will be to upward rate movements
- What future borrowing requirements will you have, for example renovations, buying a new car
- Understand what level of flexibility you require
What are the advantages and disadvantages of some loan facilities?
Some generic examples are:
- Basic Home Loan
Typically suits someone making minimum repayments with a low bank account balance month to month.
- Fixed Home Loan
Typically suits someone who is working to a tight budget, is sensitive to interest rate movements and is not planning on making large lump sum repayments
- 100% Offset Account:
Typically suits someone who has a high bank account balance month to month, is saving for other purposes, and considering future tax consequences
- Line of Credit
Typically suits someone who is interested in making minimum monthly repayments (such as interest only) or looking for future flexibility and/or the ability to borrow additional funds without reapplying.
- Master Limit or Portfolio Loan
Typically suits those who require maximum flexibility and personal control of their mortgage rather than leaving that to a lender.
A cheap interest rate can sometimes prove to be more costly than a loan facility with a slightly higher rate that is better suited to you and your needs.
It now should be a little clearer to you that your mortgage is more about about what you need now and in the future and not just about the interest rate. Tthis information coupled with a professional MFAA member to guide you (explaining how different mortgage products work in more detail) you can select the right product to suit you and still get a competitive rate along the way.
Call us today on 5474 4100.