There are times when we need to take a loan, it could be for a big pre-planned purchase such as a house or a car, or it could just be for an emergency. Whatever the reason for taking a loan, it is important to keep in mind some basic rules, which can stand you in good for the tenure of the loan.
When it comes to home loans there are five key areas you need consider:
1. Loan type: What type of a buyer are you?
It might sound obvious, but understanding what type of buyer you are will help you navigate through the complexities of the home loan market and find the best loan for your needs.
- Investor vs. owner occupier
- First home owner
- Renovator or builder
2. Interest rates: what type of rate do you want?
The interest rate on your mortgage is the rate at which the bank will charge you interest on the amount you have borrowed. The rate is expressed as an annual percentage, but lenders calculate the interest on a daily basis so that the interest compounds .A range of factors can affect the amount you repay your bank including:
- Fixed vs variable rates
- Principal and interest repayments
- Advertised rate vs. comparison rate
- Frequency of payments
3. Fees: uncover hidden costs and learn how to minimise them
Fees are much like death and taxes – they’re pretty much unavoidable and home loans are notorious for them. The good news, however, is that there are lenders in the market who have minimal or no fees – it’s just a matter of knowing what to look for.Here are the most common fees in the home loan market.
- Loan fees & hidden costs
- Upfront fees
- On-going fees
- Break fees
- Exit and discharge fees
- Redraw fees
4. Features: do you need a flexible home loan?
When looking for the right mortgage, a loan’s features can sometimes be just as important as the interest rate, especially if you are planning to put extra money towards your mortgage at some point over the life of the loan.
- Additional repayments
- Lump sum payments
- Offset accounts and redraw facilities
5. Loan size: how much should you borrow?
Taking the time to understand each factor will help clarify the process and enable you to properly allocate for the additional expenses included in the standard home loan:
- Deposit size
- Additional mortgage costs
- Property value
- Ability to repay
In summary, read the fine print and remember to negotiate with your banker,compare the term of loan, interest rates, security involved and penalty & fees of various banks before taking a loan, always do a self-analysis of the financial situation before deciding on the amount of the loan to be borrowed.