Finance

Cheaper Is Not Always Just About The Interest Rate

Of course it is better to pay a lower rate on your mortgage than a higher one. However just as you do when you go shopping for a new car or a new dress, you can not choose only on price.

Imagine what you would get to drive if you looked for the cheapest car that you could find? It may move but will probably offer few of the conveniences that you would like to have. Your home loan works the same way.

What loan features do you wish to have?

Just as you do when choosing a car, your home loan comes with a range of features and will be priced by the lender accordingly. There are features such as redraws, offset accounts, loan portability, loan splits, ability to pay interest only and many others. Some may be non-negotiable. Therefore it is important to compare apples with apples. If you are choosing between home loans. One is 5 basis points cheaper but does not offer some of your key features, it would probably be wise to give it a miss.

To fix or nor to fix?

Should you fix your mortgage or keep it variable? That s a personal choice and has a lot to do with your perception of where rates are headed n the near future as well as your intentions for the property. Borrowers looking to sell in the near future or pay out a large chunk of the mortgage, are generally better off not to fix. However if you prefer to fix, choosing a mortgage that allows you to keep part of the loan variable and part fixed may be the answer. The variable part can be equivalent to the amount you intend to pay out over the next year or two.

For example, if you expect to be sent overseas by your employer for say 5 years and this may lead to you selling your home, do not fix at all. Your lander can charge a small fortune if you wish to break your fixed contract mid way.

Low Doc or Full Doc?

Are you self employed? Working long hours in business and have not had the time to bring your financials up-to-date? You may need to consider a low doc home loan. If you do, make sure that the lender offers you the opportunity to move across to a full doc at a later date, once you bring your documents up-to-date.

What about other loan costs?

Your mortgage costs are more than interest alone. There may be application, valuation as well as annual fees. Make sure that you know what you will be charged with each loan option before proceeding.

Seek professional advise

What if you do not know what loan features you need? Perhaps this is your first home loan. You should speak to an independent loan specialist. A mortgage broker can talk you through your available options and their advantages. They should be able to help you identify the loan features that you need.

About the author

Oliver Revilo