A home loan is a long commitment, so it is important to ensure you’re ticking all boxes for your ideal home loan. Here are some tips of what to look for when choosing a home loan.
✔ Do I need Lenders Mortgage Insurance (LMI)?
If you have less than a 20% deposit, you may need to pay for lenders mortgage insurance. Lenders Mortgage Insurance is a premium payable by you the borrower that protects the lender (financial institution) against potential losses if you are unable to repay your loan.
✔ How much of a deposit do I have?
Different lenders offer lo ans with different Loan to Value ratios (LVRs). The LVR is the percentage of the loan amount that you are able to borrow from the lender.
✔ What fees apply to the loan?
There may be a number of fees charged on different features of a home loan, including:
- Application fees (also called establishment fee)
- Property valuation fees
- Ongoing fees such as annual fees
- Late payment fee (also called default fee) (if you make a required repayment later than the due date)
- Early exit fee (if you repay your home loan in full and close the loan before the end of the loan term)
- Discharge fee (also called termination fees or settlement fees) (charged when you pay out your mortgage in full)
- Break fees (also called break costs) (if you switch loans during a fixed rate term)
- Redraw fees (if you use a redraw facility)
- Account-keeping fee for offset account (if you have an offset account attached to your loan)
- Lender’s Mortgage Insurance (LMI) (if you only have a small deposit on your loan)
✔ What is the interest rate on the loan?
Lenders will typically display a current/advertised interest rate and a comparison rate.
The advertised rate generally is just the interest rate, and it does not include the cost of any fees or charges.
Meanwhile, the comparison rate calculates what the cost on that home loan product would be for a certain loan amount over a certain loan period, taking into account most fees and charges.
In addition, some lenders will have a honeymoon rate or introductory offer interest rate. The honeymoon rate and introductory rates are generally lower rates offered only for a short time at the start of your loan. So always remember to check the comparison rate to get an idea of what the real cost of a loan would be when your introductory period came to an end.
✔ What’s the best type of loan for me?
Another home loan feature to look for is the decision between fixed or variable. You will need to weigh up the pros and cons for your individual circumstances to get the low-down on the benefits of both types of loan.
Remember some loans have the ability to split your loan so that a proportion of the loan amount is variable and the remaining portion is fixed.
✔ Does the loan have features important to me?
While interest rate, fees, deposit and repayment amount are important things to consider when taking out a mortgage, you should also check out what features are on offer in a home loan that you might be considering. Some home loan features to look for include:
- An offset account
- A redraw facility
- Ability to make extra repayments
- Ability to make lump sum repayments
- Ability to split the loan between fixed and variable
- Ability to get home loan pre-approval
Excerpt from Canstar, Choosing a home loan checklist.