Things to consider when choosing a loan
Deciding what type of home loan to choose will depend on your personal circumstances.
Whether you use a mortgage broker to write the loan or go direct to the bank, there are some questions to ask which will help you get the most out of your loan.
What type of loans are available?
These could be fixed loans, variable or a combination of both loans. Fixed loans mean that the interest rate is fixed a period of time. On the other side there are variable loans and these are subject to interest variations as they are announced. One can also choose to fix part of the mortgage amount and have the remaining mortgage set as a variable loan.
Will you need lenders mortgage insurance (LMI)?
Usually any loan value that exceeds 80% of the value of the property will require LMI to be paid. This is a once off fee and protects the lender not the borrower. It is often added to the loan but may affect your borrowing capacity.
Do you want an offset account?
In some cases an offset account may be useful should you want to have access to the funds, while at the same time using the balance in the offset account to offset the total amount borrowed. As an example if you have a loan of $300,000 and $50,000 in an offset account you will only pay interest on $250,000 as the loan is "offset" by the amount in the offset account. At the same time you would have daily access to the $50,000 should you need this.
What loan fees are applicable?
There are many different types of fees associated with loans including establishment fees, discharge fees or maintenance fees. Understanding the fees can help with comparing different loan options as well as future decisions regarding changing loans.
How much can I borrow?
Although we have been focusing on loan questions, knowing how much you can borrow is important. The main reason is that you can seldom borrow 100% of the loan amount needed. This means that you would need to have a deposit saved prior to your loan application. Knowing how much you want to borrow will help determine the size of your deposit.