Buying a home is the biggest investment and purchase for almost everybody in the world. The gravity of the situation requires that you give it careful thought. Not only is it necessary when deciding what property you should get and where it is located, but also when deciding how you are going to acquire the property.

Since housing is a basic need, a huge number of lenders like banks have multiple loan options rolled out to fit the needs of every individual. With all these choices, how do you decide which one is for you? 

How important is finding the right home loan? 

Normally, loans are in the 15- to 30-year terms, meaning paying a mortgage is something you have to do for the next few years to come. This is why you have to carefully assess a home loan against your lifestyle, financial capabilities, the amount of down payment you can afford, and future plans. 

Some don’t mind paying long-term as long as their monthly income can cover the mortgage while others prioritise flexibility and peace of mind. 

What are the factors to consider with home loans?

Fixed-rate vs. Variable rate

With variable-rate loans, the interest rate charged on your outstanding balance changes according to the movement of the market. The rate charged depends on the changes in the official cash rate which is dependent on the Reserve Bank of Australia (RBA). 

Fixed-rate loans charge you a set interest rate for the entire duration of the loan. No matter how the market interest rates move, you will be paying the same amount monthly. 

It’s best to get a fixed-rate loan if the interest rates are low. For example, when the pandemic came, industries suffered massive blows. In November 2020, the RBA set the official cash rate at 0.1%. As mentioned above the banks follow this benchmark most times

The RBA also announced that they will maintain this cash rate until 2024.

If you expect that market rates are to get lower in the next few years, then it’s best to get a variable home loan. If it is expected to increase, then it’s in your best interest to get a fixed-rate loan so you are protected from the fluctuation of the rates. 

Additional features

Let’s say, you chose a variable-rate loan. The decision doesn’t end there. 

Two lenders may offer you the same interest rate, terms, and conditions. However, you may ultimately decide between them according to the features they offer. 

Check if you are able to make extra repayments. In the event that you have spare money to cover extra repayments, it will help shorten your loan term and get you extra savings. 

The availability of a redraw facility is also a good consideration. When redrawing is allowed, once you meet the minimum amount you are required to put down for your loan, you can redraw money pooled from your extra repayments. This could be a good source of emergency money.

Linking an offset account is also appealing. An offset account functions like a regular bank savings account. When you link this offset account to your loan, whatever money you have in this personal account is counted against the principal you own. The more savings you have in your offset account, the less interest you pay.

How to compare home loans?

It is undeniably a hassle to go through every loan product with a pen and paper to make a table of comparison. To save you time, you can use this comparison rate calculator. 

Alternatively and ideally, go to a mortgage broker. They know home loans’ features by heart and can help make the decision process so much easier. 

You can also inform your broker about anything that you think may affect your paying of the loan in the future. Basically, your broker should know your financial situation well so they can come up with workarounds and better recommendations. 

Schedule a consultation now for a better-informed decision!