Have you decided to buy a property? Whether it’s your first home, an investment property or a relocation, the question most people are faced with is; Where do you start?
The whole process of choosing a home loan may feel incredibly daunting and like most, you may even find it a difficult process just to find a lender. The good news is that it doesn’t have to be. If you tackle the whole thing in planned stages then you can be sure to avoid disappointment and hopefully, much wasted time. What do you need to consider before going ahead and choosing your home loan provider? Here is a simple 5 step process to follow which can assist you along the way.
Step 1 – Weigh up the Costs vs the Benefits
There are four important things to consider at this stage:
• Needs – What exactly are your needs?
• Costs – What is your budget, your serviceability and your lending capacity?
• Features – What kind of things can you have built into your home loan?
• Benefits – Which of those features would provide you the most benefit?
Immediately you can see how taking some time to consider the above could help you in the long run.
Step 2 – Consider the repayment options available to you.
To get started, you need to consider whether you want to make the minimum payments or whether you would like to go ahead and make the extra payments. It is important to consider whether or not you would like to extend the home loan at a later stage, when planning to start your own family or if you would like access to your money for something else at a later date.
Step 3 – The purpose of the home loan
What will the purpose of your home loan be?
• Assist in the purchase of your primary home (principal place of residence), or
• As an investment
If you are going to live in the property or if you would like to borrow the money for an investment property then you may find the whole process to be vastly different. Added to this, some lenders may have different packages available depending on the option you are looking at.
Step 4 – Deciding on the length of the home loan
It is important to consider the length of the home loan. If you only need to make the minimum payments then this may cost you more money over time. If you are able to make additional payments, this will in turn assist you with offsetting your interest at a faster rate.
Step 5 – Determining your home loan structure (fixed vs variable)
When considering your home loan structure the important thing to remember is that you can choose between fixed and variable loans. A fixed rate loan is one which the repayments are paid at a fixed percentage. This means that your monthly repayments will never differ. Over time this can work in your favour should interest rates go up. The downside is that most lenders will offer you a higher fixed rate percentage to ensure that their interests are covered. A variable loan is such that your initial percentage offered to you by the lender, will be lower however should interests rates rise, so will your repayments as your rates vary on the fluctuation of the interest rates. This can be both beneficial and not as should interest rates drop, so will your repayments.
The important thing to consider is that the home loan suits your needs and personal financial situation.
Remember, that when choosing which option works best for you, you should also take into account the following:
1. your additional payments
2. the saving you will generate in terms of a reduced interest period
Choosing a home loan is one of the biggest financial decisions you will make, so assessing the situation and your personal circumstances is key, enabling you to make the right decisions and at the right time.
Don’t be afraid to ask questions because if you ask them of the right people then you could potentially save yourself thousands of dollars at a later date. Asking questions is a great way for you to make the best decision.
Why don’t you get started today and find out more? It has never been easier for you to start making the right decisions in terms of your finances.