Before you engage in any transactional contract of buying a property, you should conduct self-accessment to understand what is the best choice for yourself. After making the major decision to buy a property, the next question is "How should i finance the property?" The process of choosing a loan and a lender can be quite complicated but if you tackle it in stages you can avoid disappointment, frustration and wasted time.
There is no substitute for doing your homework. A good place to start your search is with our list of home loan lenders. Many lenders are online and have their own web sites and telephone hotlines. There are also other web sites which are independent and will help you choose the loan that suits your requirements.
Choosing a right home loan, considering the following:
Meeting your needs
What you want the loan to do is the most important consideration. Do you want to make the minimum payments only? Do you want to be able to make extra payments? Do you want to be able to extend the loan later when your family grows or you need finance for special purchases such as a car? Do you want a credit card attached to the loan? These are some of the things you must think of before you start asking questions of different lenders.
Loan repayment period
If you are going to live in the property you need a home loan. If you are borrowing to purchase an investment property you need a residential investment loan. Some lenders offer separate products such as interest only repayments for investors but increasingly the products are losing their differentiation.
Fixed or variable interest rate?
Even the most experienced financiers and professionals have trouble predicting home loan interest rate trends and may get it wrong! Should you lock into a fixed home loan interest rate in case the rates go up again or ride out any changes that may occur?
In a variable interest rate loan you are subject to market forces. When the rate goes up so does your mortgage repayment. Conversely, when the rate goes down so does your payment but if you can keep the repayment at the previous level you will be helping reduce the interest portion.
In a fixed interest loan the rate will not change during the fixed period. When the interest rates rise you will be better off than those with a variable rate. Conversely, when rates fall you will still be repaying a higher interest rate.
Some lenders offer other choices including a combination loan that with fixed and variable terms, or capped with the rate cannot rise beyond a certain rate.
The loan features
It is important to choose a loan that suits your needs so that you aren�t paying for features you can�t use. The flexibility of the loan is also important as your personal and financial circumstances may change in the period of the loan.
Putting a value on loan features and flexibility is not easy so the best way to compare the various products is to draw up a list of all the features you want and the associated charges to find your ideal loan.
Points you should consider are:
- Portability - so you can keep your loan when you purchase another property. This may involve a fee but it will be considerably less than the cost of establishing a new loan.
- Flexibility to switch to a fixed rate - when interest rates rise. Some lenders charge a fee or make you pay out the loan and establish a new one.
- Redraw - so you can access the amount you are in advance on your mortgage. Some lenders charge a fee for this after a certain number of withdrawals.
- Refix - lets you lock into another fixed rate at the end of the fixed rate period. Some lenders charge a fee for this.
- Additional repayments - can result in significant savings in interest.
Remember that choosing a home loan is probably the biggest financial decision you will make therefore gather your information, analyse it thoroughly and don�t be afraid to ask questions. With right choice which may save you thousands of dollars in the end.
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