Let’s go shopping … for the best home loan. What is the most important thing for most people? As a finance broker, I find most people want to know if they can afford a home loan? How it will fit in with their life and finances.
If you are going to commit to hundreds of thousands of dollars you want to make sure you can meet those mortgage repayments. I want to pose a question to you – should price be the only factor you should consider when selecting a home loan? Is the cheapest home loan necessarily the best one?
Author and financial journalist Noel Whittaker recently published an article in The Sydney Morning Herald on why cheaper home loans are not necessarily good value. There are a whole lot of other factors to consider when finding the right loan for you and your circumstances.
Is cheaper best?
You must read between the lines (or use a dam good finance broker) to understand how loans work. On paper, some loans appear to be less expensive. Some institutions offer no frill loans (less features) where the interest rate is low (look out for my blog next week on interest rates). But may offer no flexibility.
Flexibility vs cheap
The low interest rate loan may serve you today but what happens if your circumstances change – you have children, job changes, need to get a bigger house, renovate or life changes – do you have room to make any changes to your loan conditions like reduce your payments?
If it is a no-frills loan, chances are a big fat no.
What started out cheap can cost you
A ‘cheap’ loan in financial terms can turn into something that’s costly for your family’s lifestyle and wellbeing.
Pros vs cons
- A no-frills home loan may not have a redraw facility. This is a special condition that allows you to pay more off your mortgage when you can, to reduce your interest. You’ll then have access to this money later.
- A no-frills home loan may not give you the option of having an offset account. This is a transaction account linked to your mortgage account. Because interest is only charged on the net balance (your mortgage balance minus the balance of your offset account), it reduces your interest payable and can therefore be a better choice than a standard savings account.
How to know what to pick
Ah ha … that is where I come in. This is my playing field. I love spending time with people to find out what they want, where they want to be and how they want to get there so I can find EXACTLY the right loan to for you.