How to choose the right home loan

When it comes to choosing the right home loan, it can be difficult to know where to start!

There are more options available than ever before, each with benefits that can give you added flexibility, or help you to pay off your loan faster.

When looking for a home loan, it’s important to not rush things. You don’t want to get caught up in rates for example, and miss out on other benefits of certain home loans that can help you in the long-run.

We’re here to help you get down to the nitty gritty and know what to look for in a home loan. 

How to choose the right home loan

First off, what are the different types of home loans that are available?

To break it down, you have:

• Basic loans – These loans are your run of the mill, everyday loans that boast low interest rates. They typically have little to no other benefits.
• Standard loans – Standard loans will usually have pretty market standard interest rates but you can also have flexibility and features like a redraw facility, split loans or offset accounts.
• Home loan packages – Usually give you access to a discounted interest rate, as well as things like a free transaction account and a no annual fee credit card. 

Selecting between these three options really depends on what you’re after. It’s also worth looking at whether or not you’d want a fixed or variable interest rate. Interest rates will change depending on the market, so it’s worth researching what your rate would be now and what it could be in future.

You’ll also need to consider things like whether you’d like to have principal and interest repayments or interest only payments. 

Principal and interest loans

Principal and interest loans mean that you’re paying off both the home loan amount and the interest in your repayments over an agreed period of time. 

Interest only loans

Interest only loans are, as they suggest, loans where you purely repay the interest amount. This option is useful for example if you’re an investor. 

If you’re an investor and have an investment property, you can potentially claim higher tax deductions based on these payments. 

We recommend chatting to a professional to see what is most suitable for your circumstances. 

What home loan features to look out for

So what exactly should you be looking out for? This is a tough question as it really depends on your situation. 

We’ve listed a few questions to ask yourself when assessing home loans:

• Can I make extra repayments without fees attached?
• Is it possible to split my loan across variable and fixed interest rates?
• Can I add an offset account to my home loan?
• Are redraw facilities available if I need them?

Have a think about what your priorities might be and rank them by importance. This can help you focus on what matters most when you’re assessing home loans. 

Things to keep in mind

Not every lender is the same, but it’s worth keeping an eye out for certain fees or additional costs that you may not have accounted for. 

Most fees are standard across the board, however, you may find yourself a promotion where certain things are waived.

These fees include things like:

• Application or establishment fees
• Valuation fees
• Lenders Mortgage Insurance
• Monthly or annual fees
• Break or exit costs

You’ll also want to factor in your repayments and any comparison rates that are given. Credit providers will always show their home loan interest rate, paired with a comparison rate. 

A comparison rate includes the interest rate, as well as any fees that are related to the loan. This rate gives you a better idea of the true cost of your home and is based on the same factors across institutions. This makes it much easier for you to compare across institutions. 

Once you have interest rates to compare, you can use a loan repayment calculator to understand what your repayments look like based on what amount you’re looking to borrow.

What's next?

If you’re still unsure on what home loan might be suited for you, or if you would like to simply talk through your options, the team at Bank First is here to help. As the bank that exists to serve educators, we’re here to empower you to make the best decisions for you, when it comes to selecting a home loan. 

Visit bankfirst.com.au to find out more or to chat to one of our friendly home loan specialists today. 

 

 

Victoria Teachers Limited. ABN 44 087 651 769 AFSL/Australian Credit Licence Number 240 960.

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