How To Choose Home Loan

When you are looking around to choose a home loan, it can be helpful for you to use a “Home Loan Checklist”. It will help you make a decision that will suit your needs and circumstances. You can use the checklist for any purpose, including:

>> Buying your first home;

>> Refinancing your existing mortgage;

>> Consolidating your debts

>> Cash out/equity release;

>> Buying an investment property;

>> Constructing your new home; or

>> Upgrading or renovating your existing home.

You can also use the checklist to avoid applying for loans that don’t suit your particular needs or circumstances.

Ask your Lender/Credit Provider for a copy of their Key Facts Sheet

While doing your research, the best way to compare home loans is to ask different lenders/credit providers for a copy of their “Key Facts” sheet because it will tell you:

>> The total amount to be paid back over the life of loan;

>> The repayment amounts and payment options;

>> The fees and charges payable; and

>> The comparison rate which will help you check the total cost of a home loan against other home loans.

What is Included in the Home Loan Checklist?

Here is a list of things you should look out for before you sign up and which are included in the Home Loan Checklist.

1. INTEREST RATES

This is where you need to know details of the interest rate percentage (%) charged by lenders/credit providers for any of the following home loan options, including the comparison rate:

Variable Interest Rate Home Loan

With this option, the interest rate increases or decreases in accordance with the rates in the marketplace.

Fixed Interest Rate Home Loan

With this option, you may elect to fix (lock-in) an interest rate typically for 1 to 5 years.

Split Loan (Combined Variable/Fixed Interest Rate) Home Loan

This option allows you greater flexibility because you may elect to divide your loan into a number of splits. For example:

>> You can arrange for one split loan as a variable interest rate; and

>> You can arrange for another split as a fixed interest rate.

Introductory (Honeymoon) Interest Rate Home Loan

At the start of a new loan, you may be offered an interest rate for an introductory or honeymoon period which is usually at a lower rate. However, at the end of the honeymoon period, the loan will eventually revert back to a standard variable rate.

Comparison Rate

You need to check the Key Facts sheet for comparison rates. As the comparison rates will help you to easily compare the total cost of loan against other loans, including:

>> Interest rates;

>> Application fees (sometimes also called the establishment, set up or upfront fees); and

>> Ongoing fees.

2. REPAYMENT OPTIONS

This is where you need to know what repayment options are available to you including:

Additional Repayments

You need to know if you can make additional repayments which are in addition to your normal minimum monthly repayments.

Redraw Facility

You need to check the Key Facts sheet to find out if you can make extra lump sum repayments over and above your contracted loan repayments. You will also have to check whether you can then redraw (withdraw) these extra funds from your loan when you want them. You may find that in some cases, lenders/credit providers may not release your redraw funds when you want them.

Paying Weekly or Fortnightly

You need to know if you can select weekly or fortnightly repayments as it will enable you to repay (pay off) your loan sooner.

3. FEES and CHARGES

To help you work out the true cost of a home loan, you need to know the details of any fees and charges that may be charged including:

Application Fee

It is also called establishment, setup or upfront fees. You need to know details of the application fee charged by lenders/credit providers which covers or partially covers their costs of setting up or establishing loan.

Exit Fees

It will help you to know if your current lender/credit provider will charge an exit fee for the early pay out of your loan, and if so, how much you will be charged.

Break Costs

It will help you know if your lender/credit provider will charge a break fee for ending a fixed rate contract before the fixed rate expires, and if so, how much you will be charged.

Ongoing Fees

You need to know details of any ongoing account keeping fees that the lenders/credit providers will charge against your loan (i.e. these are usually charged monthly).

Additional Charges

You need to know if there are any additional charges to be made against loan, and if so, you need to know whether you can pay these fees upfront or have the fees added to your loan.

Finding a suitable home loan that suits your needs is a major financial decision. So, don’t rush into anything too quickly. Always remember that while you are shopping around for a suitable home loan, do your research and review the Key Facts sheet closely before you sign up for loan.

Seek Expert and Professional Advice

So, now that you have a basic understanding of why a home loan checklist is important, you should also consider seeking help from a professionally qualified finance broker. He/she will help you to create a personalized home loan checklist. He/she will save you lots of valuable time running around on your own and assist you in determining which potential lender/credit provider best meets your needs and circumstances.