How to get the best home loans on the market… for you
For many people, owning a home is the ultimate life goal but it can take years of hard work to build up the wealth it takes successfully purchase a place. Because of this, most people will usually need to receive some assistance from the banks to ease the financial strain, with loans ranging from fixed to variable and everything in between.
Securing a home loan obviously allows people to borrow significant sums from the bank – paid off in time, with interest. But every home buyer needs to be aware of the terms and conditions of their loan before they sign up for it – complicating factors like fluctuating interest rates can make loans more expensive than they need to be.
Here are a few general tips and guidelines for choosing home loans in Australia that are right for the individual.
Know the types of home loan
There are a number of different home loans to choose from. Each type has its own advantages and disadvantages and being aware of the potential pitfalls early on can reduce problems down the track.
Here are some of the more common home loan options on the current market.
Introductory loans can be cheap to begin with: the interest rate for introductory loans is known as the ‘honeymoon’ rate because it is set low for a short amount of time to attract borrowers. While borrowers may enjoy a low interest rate for their first year, the rate will significantly increase afterwards and there can be severe penalties for cancellation.
Fixed rate home loans
A fixed rate means fixed loan repayments over a period of 1-5 years based on an interest rate that stays the same over the repayment period. Fixed loans are reliable and certain; immune to external factors, but they can be expensive in the long term if the interest rate is set at an initially high rate that won’t change.
Variable home loans
The interest rate of a variable rate loan goes up and down depending on the interest rate set by the Reserve Bank. Variable home loans can be cheaper than fixed loans – depending on economic policy – but variable loans can also be surprisingly good option for those looking to pay a fair and consistent amount over lending term – fluctuating interest rates usually balance out in the end.
However, if there’s serious economic problem that requires a dramatic shift in rate then it can have an equally serious effect on a loan. With uncertain economic times ahead these loans are, perhaps, best reserved for the economically initiated.
Split rate home loans
With this hybrid type of loan, one portion of the loan may be fixed, and the other variable. The proportion of each type is agreed between the lender and the borrower. This type of loan provides some flexibility and also some rigidity, balancing out some of the problems of fixed and variable loans but also reducing some of the potential benefits too.
Talk to a broker
It is worth noting that new options to repay loans become available almost every day, so this list is not exhaustive. Brokers are a good point of call for tailored advice as they may be able to recommend something that’s suited to personal needs.
Be aware of the fees and extra charges
There are quite a few fees associated with loans of any kind, and home loans are no different. Extra fees should be evaluated and noted as top-up charges can make a big difference to the overall amount that’s paid back. Some of the common fees include:
• Entry fees: lenders may charge an upfront fee for an application
• Valuation fees: these are charges for the assessment of the market value of your property – at any given time
• Ongoing fees: a loan may be subject to regular maintenance charges, particularly if the loan includes extras such as a savings account.
• Exit or cancellation penalties: charges to get out of a loan agreement may be quite steep, so the costs of exit should be clarified with a lender.
A home loan calculator can be worth consulting to help clarify exactly how much will be repaid, including all of the above.
Stick to the tips above and you stand a good chance of finding a good home loan. Good luck!