Interest rates are relevant and they are an important factor to consider when deciding which loan is right for you. A higher interest rate can mean thousands of dollars over the life of your loan. So, getting a nice low rate is something you need to make certain you do.
However, purchasing a home is the biggest financial decision most of us will ever make. Make sure you consider all the factors before you jump in.
So, what else is there to look at? Well, there is the type of home loan you want. A Basic Home Loan doesn’t have many frills and is often a variable interest rate. There aren’t any complicated fees and there isn’t any option to pay off early or pay more than your required amount. These are great for people who don’t foresee any dramatic life changes coming soon.
Let’s add two more fictional characters to our repertoire: Cindy and Lee, the home buyers.
In this example, Cindy and Lee are buying their first home and expect to stay there for at least a few years. They don’t expect to get married or have kids in the near future. Their jobs are stable and they think they will be employed for the foreseeable future. A Basic Home Loan is right for Cindy and Lee. They are unlikely to have access to extra funds to pay down the principal faster or be able to effectively use an offset account to the degree that it will make a significant dent in the short term, so rather than pay extra fees and perhaps a higher interest rate, a basic loan may be more appropriate.
The next type of loan is a Honeymoon Loan – or introductory rate loans. These offer a very low fixed or variable interest rates for about 6 or 12 months, after which time, the standard rate applies. These are good for folks who want to do renovations and pay as little as possible on their mortgage during that time, or for people who want to make a large dent in their repayments while the interest rate is still low.
Cindy and Lee just bought a “fixer upper.” It was all they could afford after paying for their lavish wedding. However, they have some income left over every month to pay to do the house up.
The Honeymoon Loan would be good for them to fix up the house a bit, before the interest rate rises. However once the rate comes off the Honeymoon period, usually the interest rate is quite a bit higher and it is a shock to the budget and system when you are used to paying a smaller monthly payment.
Another popular type or feature is the Redraw Loan. This clever loan allows you to save for the future while paying down your principle. This loan allows you to put extra funds into the loan, thus paying off the principal. If you need the money in the future, you have the option to withdraw it.
Cindy and Lee are now looking to have children and would like to save for the period when Cindy is not working. They get a loan with a redraw feature. Every month, some extra money is placed into the loan. The principal is paid down with the extra money. However, if a “rainy day” ever hits, or she wants to take 6-12 months off work – they can withdraw that money. It’s a great safety net. If they never need the money then they have access to the extra principal that they have paid off the loan.
Equity Line of Credit
The Equity Line of Credit is also quite in fashion. This is similar
to a big overdraft at home loan rates. These loans are popular with people looking to gain access for investment or renovations, or perhaps people on commission only type roles, because they are interest only and all your income sits in the one account making it easier to pay down. They often require very good budgeting and control as the amount of principal you pay off your loan is solely determined by you.
Cindy and Lee already own a home but it’s old and in need of renovation. They get an Equity Line of Credit. They use their home as collateral and get $50,000 to renovate the bathroom and kitchen. It was easier for them to gain access and only pay interest on what they used rather than getting the whole $50,000 in a lump sum and paying interest on the full amount. Also, they are adding value back into their home by doing the necessary renovations. However, the money borrowed does not have to be used within the home. You can use the money for anything you like.
There are many more types of home loans, but these are the most common for the typical home buyer.
You can even split a loan into part fixed and part variable; well, your mortgage broker can. As you can see, from just these few types of loans, interest rate matters, but so do other factors. With the bewildering varieties of loans, and loan terms and conditions available it can be easy to lose your footing, especially if you are a first-time home buyer. A mortgage broker can sit down with you and guide you through the process, while ensuring you get the loan you need.
A broker has access to so many more loans; in fact, some loans are only available to brokers. With that in mind, your broker will show you a few loans that fit your needs, and you can choose the one you like the most. These sorts of options and this level of individual customer service can be found through the best brokers.
The best brokers are accredited by the MFAA or the FBAA. Remember, these bodies require members to have a high level of education and ethical standing. They also have guidelines in place for removing members who do not continue to meet the standards. So when you hire an accredited mortgage broker, you can rest assured that the member is in continued good standing.