5 Key Factors to Consider When Choosing a Home Loan
When it comes to choosing a home loan, it’s important that you take all factors into consideration so that you can make an informed and effective choice.
By carefully considering your home loan options, you can ensure that you get the best value for money and that you are able to purchase the home of your dreams while enjoying the lowest possible fees.
So what should you consider before you choose a home loan package? Here are five key factors to keep in mind when deciding which loan is right for you.
1. Loan type
The first thing you should consider when choosing a home loan is whether your loan will be interest-only or a principal and interest loan.
With an interest-only loan, your payments will only cover your interest payments without paying towards the principal you have borrowed. Conversely, a principal and interest loan will allow you to start paying back your loan and increasing your ownership share.
Your loan type is important, as it can significantly influence your financial circumstances now and in the future.
2. Loan term
Next, you need to think about your loan term. This relates to the period during which you will repay your home loan.
Shorter loan terms will require higher repayments on a regular basis, but you’ll also pay less interest and will more quickly move towards full ownership of your home. On the other hand, a longer loan term will allow you to repay your loan in smaller increments, but you’ll also pay more interest and take longer to pay off the loan.
Generally speaking, it’s best to choose the shortest loan term you can comfortably afford to repay.
3. Interest rate
Your interest rate is another important consideration. This affects the amount of money you’ll pay to your lender without paying off your loan.
A fixed interest rate will stay the same for a set period of time, even if the RBA makes changes on a national scale. A variable interest rate will change over time as changes occur nationally, but you may have access to more features and extra payments if you need them.
Ideally, you want to choose the lowest interest rate you can find while making an informed decision about whether to choose a fixed or variable rate.
4. Extra features
Similarly, it’s a good idea to think about the loan features you will have access to with different home loan products.
Some home loans may allow you to access extra payments or even a redraw facility that allows you to withdraw funds paid into your loan if they exceed minimum repayment requirements. Other loans may not include any extra features.
Not all features are essential, but they can be helpful to have. It’s best to assess your unique financial situation ahead of time to decide what will work best for you.
5. Your lender
Last but not least, you need to think about your lender and select a lender that you trust.
Often, great home loan packages will be available through big bank members, but this isn’t always the case. There are also small lenders that may allow you to access increased borrowing power or additional loan features.
While it is important to select the right lender for your needs, it’s also possible to refinance your loan later on if you need to change lenders in the future.
Still searching for the perfect home loan? Contact the best mortgage broker Melbourne has to offer today.