How to Choose the Right Home Loan

Are you hoping to begin a family in the near future? If you know one of you will stop working to begin a family, this will mean your income will be reduced. Don’t be tempted to qualify for a mortgage using both of your current incomes if you know one of them will stop in the near future. This is a recipe for disaster, as you’ll struggle to keep up with your payments if you’ve borrowed more than you can afford on one income.

Will you turn this property into an investment property in the future? Changing your loan structure in the future can get expensive if you make the wrong decision, so make sure you work these things into your current strategy.

Interest Rate

Of course checking out the interest rate is a major part of finding the right home loan. You’ll also need to decide whether you want to go with a variable rate or a fixed rate. However, think about your own goals and plans before you opt for a mortgage based purely on interest rate.

Often the really low variable rates come with application fees, valuation fees, and legal fees to set them up. They may also charge hefty discharge fees, exit fees, deferred establishment fees and other penalty fees for breaking out of them early.

Fixed rate home loans also carry ‘break fees’ if you break out of your home loan before the fixed term has expired. If you know you’re likely to sell your home or refinance it over to another lender in the next couple of years, don’t choose a fixed rate loan. At best, try to only fix in your rate for a shorter term instead.

Some customers may find that an offset account may carry a slightly higher interest rate than a basic variable home loan. This can be enough to put some people off and get them shopping around for the right basic variable loan instead.

However, if you know you’re disciplined enough to make one work in your favour, you’ll find that you end up paying far less interest in the long run by choosing a loan based on its features rather than its rate. Besides, you can always ask the lender if they have a professional package discount available on the amount you’re borrowing to help reduce the interest rate further.