Choosing a Loan
There are several things you should consider when seeking finance. These include but are not limited to:
Beware Fixed Rates
Attractive when interest rates are rising, fixed-rate loans also lock you in for a fixed term and as such are less flexible than variable-rate loans. You may not be able to make additional repayments or pay the loan out early without facing high penalty charges
Fixed rate loans suit borrowers who really value the certainty of knowing exactly what their future repayments will be – property investors and borrowers on a tight budget, for example.
Borrowers trying to beat rate rises by picking the right time to lock in to a fixed rate are playing a risky game. Such borrowers are taking a gamble on the future and the longer the period you fix, the more of a gamble it is. Predicting interest rates three to five years into the future is something akin to picking Lotto numbers. You might be better of in splitting your loan with some variable and some fixed. Just remember if you do actively use an offset account then fixed rate loans will not allow you access to an offset account hence splitting your loan might be a good option.
Check If There Are Ongoing Fees
Many banks charge monthly or annual administration fees on home loans. When comparing the cost of different loans, don’t just look at the interest rate, look at the ‘total cost of borrowing’.
Many lenders are using comparison rates or ‘average annual percentage rates’ (AAPRs) as a means of comparing the true or total cost of loans. Although this measure incorporates fees as well as the interest rate, they can be misleading because an AAPR will vary on a particular loan depending on the amount borrowed.
Check Your Statements For Errors
There are claims that more than 50 percent of home loan statements contain calculation errors. Simple mistakes, like the entry of the incorrect balance or the application of the wrong interest rate at the wrong time can be costly and mostly favour the lender. We all make mistakes, even bank computers make them and that’s why borrowers should keep a close eye on loan statements.
Consider a Portable Loan
A portable home loan allows you to sell one property and move to a new one without having to refinance, i.e. pay out the old loan and take out a new one. This saves application and legal fees and can mean you can keep the great features of your existing loan – as these may not still be available on new loans – or it means you don’t have to end a fixed rate period and pay hefty exit fees. Just remember most lenders require you to have a same day settlement so it is not as easy a solution as it often seems.
Most lenders will insist that the loan amount required for the new property is no greater than the existing amount borrowed.
Keep Accurate Records
Keep accurate records of your deposits and ATM transactions. It is also wise to keep copies of your loan application and approval documents in a safe place. This is the best way to avoid hefty fees which may be charged by a bank when its customers want to see copies of their cheques or loan files.
Look For Flexibility
When taking out a loan make sure it offers the flexibility to meet the changing circumstances you will undoubtedly experience over the 10 to 25 years of your loan. The ability to make extra repayments, redraw extra repayments, fix the rate on a portion of the loan, or refinance to another loan if need be are all features to be considered.
Most fixed term and rate loans and some basic loans don’t allow you to make additional repayments, or charge a penalty for doing so. Make sure you understand the terms and conditions before taking out your loan.
Investment Home Loan
An investment home loan is a loan is sought for the purpose of financing purchase of a property as an investment rather than an owner occupied residence.
To get the best deal on an investment home loan you may benefit from the specialist knowledge of an investment mortgage broker. When seeking an investment home loan, a broker who specialises in this area will be able to recommend a solution that best fits your need and personal circumstance, while also taking into consideration the state of the market and your long term plans. If you are investing in your future make sure you get the right assistance.