Not too long ago, your mortgage was almost as long-term as your marriage. People would get married, buy their first home, take out a mortgage, and pay it off for the next 25 or 30 years of their lives. Things are quite different today. There are hundreds of lenders in Australia offering a wide range of home loan products. How to choose the loan that is right for you? Here are some tips.
Size of your loan
In most cases, your ability to borrow and the size of the loan you may qualify for will be determined by
– your declared income;
– active and passive position;
– deposit available.
The loan affordability calculator used by each lender is different. So even if you’ve been turned down by one lender, another lender may be able to approve the exact same finances and loan size.
One thing to consider is whether you think you’ll be able to afford the loan repayments. In today’s interest rate market, it’s important to consider a couple of likely increases in interest rates when calculating the affordability of your loan.
It is useless to find a lender who is willing to lend you $500,000 when you yourself do not believe that you can comfortably repay that amount.
Key Loan Reduction Techniques
There is no magic product that will make your mortgage disappear. In fact, there are only a couple of ways to save money on your home loan:
In other words, if you want to pay off your loan quickly, you must make larger and more frequent payments, at the lowest possible interest rate.
If finding the required payments on your desired mortgage presents a problem, then the mortgage selection rules change. To pay off that $500,000 mortgage, you may need to start with a honeymoon product and then move to an interest-only loan for a period of time. Perhaps paying more and faster is not the path for you. Again, the rules change depending on your individual circumstances.
Loan Features
Most lenders offer a variety of loan options. Some allow you to access your money, such as mortgage clearing accounts and redirection facilities. Others allow you to transfer your mortgage to another secured interest loan.
It is up to you to decide which features are necessary and which are “nice to have”. As with most things in life, additional features tend to come at a higher cost. Therefore, it is advisable to take and pay only for what you need.
loan fees
You should be aware of all fees and charges associated with your loan. These may not be obvious at first glance, but will be reflected in your loan comparison rate. If you’re looking for the cheapest loan possible, you should include in your calculation the cost of setup, monthly fees, replacement fees, as well as potential fees if you refinance or pay off the loan.
honeymoon loans
Honeymoon home loans are great if you want to take advantage of a lower rate in the short term, where your financial circumstances are likely to improve in the future.
If you need the honeymoon rate to pay off the loan, skip it.
These loans present only a short-term savings, since they revert to a standard variable rate at the end of the honeymoon period.
Fixed or Variable
Many Australians are now looking at rising interest rates and wondering whether they should lock their mortgage rate or leave it floating. There is nothing right or wrong in this decision. A lot depends on where you think rates will go next. While people often choose to lock in to avoid damage from future interest rate increases, you should be aware that the market will often build the anticipated direction of future interest rates into your current fixed rates. So locking in the rate today doesn’t necessarily mean you’ll pay less in the long run.
Professional Package Deals
It is always worth investigating the Professional Package Loans offered by the lender of your choice. These generally offer a lower interest rate and, despite their name, are also available to “non-professional” applicants.
Low Document Loans
Low Doc loans are great if your tax returns aren’t up to date or your circumstances are a bit outside the criteria of traditional lenders. These loans require little paperwork and a lot of flexibility. We have seen many asset rich but cash flow poor applicants do well with such loans. The Low Doc loan market is so competitive that Low Doc mortgages are available from a number of lenders at rates not much different from Full Doc loans.
Revolving line of credit
A great product that you have already built up some equity in your home and would like to use for any worthwhile purpose. A line of credit is like a credit card, but the money is available at home loan rates. As long as you are a responsible borrower, this is a great financial product.
For more information on the Australian home loan market, visit
www.honeyloans.com.au gold
www.webdeal.com.au
