08 Jun Things to consider when choosing a home loan.
Before you venture on a hunt for a property to buy, it is important to first have the right home loan in hand. When deciding to choose a home loan, you must look at requisites of getting the loan and the fees it will cost. In addition, there are a lot of other things you need to consider. Here is an overview, read on.
Home Loan Interest Rates
The most important aspect of home loan (or any loan, for that matter) is the interest rate. There are three types of interest rates you can choose from, namely: variable interest rate, fixed interest rate and split interest rate.
In the fixed interest rate, the interest rate remains the same throughout the term of the loan. On the other hand, the interest rate in variable home loan varies depending on the market rates.
Variable interest rate offers lower payments at the initial stages of the loan, but the payments may increase depending on the changes in the interest rate.
In split interest rate, a part of your loan is fixed while the other part is variable.
You must choose the interest rate that best suits your needs.
Home Loan Repayments
The next important thing to consider is the home loan repayments. You can choose from either principal and interest repayments, or interest-only repayments.
In principal and interest repayments, you have to make regular payments of the amount borrowed as well as the interest charged by the lender.
In interest only repayments, you are only required to pay the interest for an agreed period of time. It can be a good option if you are on a tight budget. The principal amount will be paid after the agreed term of interest payment is over.
Loan Mortgage Insurance (LMI)
If you do not have a deposit of 20% of the total value of the home, then lender mortgage insurance payment is necessary. Loan mortgage insurance protects the lender from financial loss in case you are unable to repay your home loan.
Fees Applicable on a Loan
You are required to pay fees on different features of a loan. These fees may include:
- Valuation fees
- Accounting fees
- Annual fees
- Late payment fee
- Redraw fees (for Redraw facility)
Lenders will generally offer an advertised rate or comparison rate. The advertised rate is the current rate of interest without any fees. The comparison rate includes the average monthly payments, charges, and fees that might have to be incurred.
Some lenders may give the honeymoon rate. In the honeymoon rate, a lower interest rate is paid for a short period at the beginning of the loan.
Home Loan Features
Home loan features are important to consider as these can ease the repayments and provide you with more options. Some important features to consider are:
- Extra repayments facility
- Redraw facility
- Offset account
- Repayment holiday
- Line of credit facility
The things discussed above must always be considered when choosing a home loan. If you are still unclear about the right home loan, then it is best to take advice from professionals. We at Josh Financial Services can make the process easy for you. Contact our experts to get the best advice about the right home loans.