How To Find The Best Home Loan
Whether you are buying your home or building an investment portfolio, finding the best home loan starts with a clear understanding of your needs and objectives – not just now, but in the foreseeable future too.
The best home loan is rarely the one with the lowest rate. You can’t start looking for it, unless you have answer the questions below.
1) What do I need the loan for? Is it to buy a principal home or an investment property?
2) What are my objectives – e.g. pay it off sooner, open up cash flow to invest further?
3) Will my circumstances change during the course of the loan?
4) How will I use the loan? What features will suit those needs?
This will help you decide what features you need.
Loan Considerations For Home Buyers
If you want to buy your own home, there are a number of different features you may want to consider depending on your needs and how you are likely to use the loan.
Options For A Repayment Flexibility
It is important to remember that circumstances change. Having a home loan that offers flexibility through these times can help to prevent against financial strain and mortgage related stress.
A perfect example of a foreseeable change that many young couples need to consider is that of having children.
When income is suddenly reduced, the option to reduce mortgage repayments may be desirable.
Will You Need A Repayment Holiday?
Many lenders offer what is called a ‘repayment holiday’. This allows the borrower to make reduced repayments over a certain period of time as they adjust to a new lifestyle.
Will You Want An Offset Account?
An offset facility is another feature that many home owners find useful.
It’s basically an everyday transaction account with the same interest rate as your mortgage.
The more money you hold in there, the less overall interest you pay on your mortgage.
Meanwhile, you can access the money whenever you need it.
Will You Need To Redraw Into The Loan?
A redraw facility allows borrowers to take money out of the loan to spend – much in the same way as a credit card.
What Is The Cost?
The best idea of cost can be found in the comparison rate. It’s intended to represent a truer cost of repayments once foreseeable fees and charges are factored in.
If you want to figure out how much your repayments will be each month, using the comparison rate will give you a more accurate figure than interest rate alone.
How Will You Use The Loan?
Say, you had a loan that offered five free redraws each month, but you were making 10, those extra redraws would come at an extra cost. Knowing how you are likely to use the loan will help you know what features to look for.
Investors Have Different Needs
Property investors should look beyond rates and focus on lender’s policies when choosing the right loan.
If you want to build a property portfolio, it is important to choose lenders with policies that will allow for maximum flexibility.
Investors are also much more likely to need to review their loan regularly in order to maximise tax benefits or release equity.
What Policies Should Investors Look For?
Investors should ask the following when looking for the best loan:
- How does the lender assess rental income in order to help service the loan?
- Is an interest only period available and for what portion of the loan?
- What are the lender’s policies around revaluing properties to release equity?
- How much equity can be released?
How to find out which lender offers what?
A finance strategist can compare the different policies across lenders to find the best loan for your needs.
While many banks have great lending managers who will analyse your needs to find the best loan product, they are limited to recommending their own products.
Strategists, on the other hand, have access to a wider range of products and an in depth knowledge of the different policies across lenders. They will find the most balanced product for your needs.