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Mortgage Options

December 2017

Committing to a long-term mortgage is exciting and daunting at the same time. And with an endless list of financing options, it is often difficult to decide which one is right for you. Here’s a few ideas to get you started.

Mortgage Broker vs Bank

If this is your first home, a mortgage broker is often a good way to start your search for a potential home loan. With a broker, you will have a variety of banking and lending options, as well as varying fees and interest rates on offer. Ask for five different ways to finance your home to best access the right loan for you.

If you have an established bank relationship, let them know you are shopping for a home loan and see if they are willing to give you a better rate due to your customer loyalty.

 

Fixed or variable interest rates

If you are keen to lock in your payment amount over the course of the loan, a fixed rate loan is the way to go. This allows you the best way to budget moving forward. And even though it may cost you more with up-front fees, it could also be beneficial if there is a substantive interest rate rise during the first five years of your loan.

Variable loans usually have lower initial fees and a lock in rate of one-to- two years, but then as the word says, the rate of interest is variable, and is set by the RBA and/or your lender.

Do the calculations of what the increase in your repayments would be with a one or two per cent interest rate rise to really assess the numbers. Then, put both options side-by-side and see which one works best for you over the short and long term life of your loan.

 

Length of mortgage

Depending on your ownership/investment goals, the length of your mortgage and therefore your home’s anticipated equity is often tied to the length of your loan. The shorter the loan period, the higher the repayments is the general rule of thumb. Again, look at the long-range forecast of your income to see which best suits your financial situation.

 

Early repayments

A quick way to lower your principal debt is to repay your loan earlier than your chosen length of mortgage. Even $50 a month extra can take years off the life of your loan. Therefore, if you think you may decide to pay more than your required repayment amount, make sure there is no penalty for doing so! This could also be true should you choose to sell or refinance. Bottom line: Check the fine print here.

 

They want your business!

Remember there are dozens of lenders who really want your business, so ask for a better rate or terms when deciding on who best to sign on the dotted line. Make sure you are comfortable with the lending agency and its customer service as they will be in your life for the length of your loan.