How to Know Which Home Loan Option is Best for You
Before committing to a home loan for possibly the next 30 years, it is important to compare home loans and decide which is the best option for you. Mortgage lenders will offer a number of different types of loans. It is important to decide which home loan would be best suited to your circumstances now and in the future. Interest rates and fees can have a big impact on the home loan you choose.
The basic variable home loan
This is a no-frills loan which usually does not come with any features. This loan usually has lower interest rates for that reason. Should you wish to make extra repayments on this type of loan, make sure to check that no penalties will be incurred. Also look at redraw and mortgage offset facilities with this type of home loan.
The interest only home loan
With this type of loan, you only repay the interest accrued for a fixed number of years. At the end of the agreed term, the loan will usually convert to a principal and interest loan for the duration of the home loan.
Look at the fees and features that come with a home loan
Some home loans come with a line of credit, additional repayment options, mortgage offset accounts and free internet transactions. These features can save you a lot of money but sometimes the bonus of added features only comes with a home loan that has a higher interest rate. Basic home loans may not have any features but the interest rate may be lower.
The fixed interest home loan
With this type of home loan, interest rates are usually fixed for a period of one to five years. If interest rates rise during the period of fixed interest, you will be fortunate to pay the lower fixed rate. However, if interest rates fall, you will be left paying the higher rate of interest. This type of home loan may not have flexibility or features such as making extra repayments or redrawing on the loan in the future. There may also be extra fees when the fixed interest period expires.
The honeymoon rate home loan
The honeymoon rate on this type of loan will usually only last for 6 to 12 months. It will then revert to a standard variable rate. However, the reverting rate can often be higher than the current market rates which may cost you much more in the long run. Be aware of large exit fees and other hidden costs if deciding to refinance during the period of this loan.
Whatever home loan you choose, there are always options to refinance your mortgage in the future. Home buyers generally try to pay off their home loan quickly by making extra repayments or choosing to pay a little extra above the set repayment amount. Finally, you need to decide whether to make your repayments weekly, fortnightly or monthly. A lot of money can be saved on home loans by making more frequent repayments!
Author Bio:
Garima Mehta is a finance blogger and writes on business & finance topics.
