How to choose the right home loan for you
A guide to understanding home loan basics.
There are hundreds of loans on the market for you to choose from, but what’s the difference between them? Thankfully, it’s not too hard to sort out. Home loans aren’t all that complicated once you get past the flashy advertising and understand the basics of how they work.
Here is everything you should look for before you pick a home loan.
Comparison rates: what are comparison rates and why are they important?
You’ll notice that when you’re browsing home loans, alongside the interest rate of a loan will be a ‘comparison rate’. All financial lenders legally must display a comparison rate because it gives consumers a more accurate representation of the cost of their loan.
The comparison rate takes all the fees and charges of a home loan into account and provides an interest rate once these additional charges are considered. All comparison rates for home loans are based on a loan amount of $150,000 and a 25-year loan term.
Home buyer’s tip: never just look at the interest rate of a home loan alone, the comparison rate provides a better understanding of the value of the loan, once fees are considered.
Variable or fixed rates: what’s the difference between a variable and a fixed rate home loan?
The next thing to understand about loans is the difference between variable and fixed loans.
A variable rate is when the interest rate you pay on your loan can vary in line with market rates. This means that means your monthly repayments can change over time – sometimes this means you pay less, and sometimes your payments could go up.
A fixed rate is when you lock in the rate for the period you choose, normally between one and five years. Your monthly repayments will stay the same regardless of the market, for the term of your loan. When the fixed period ends, your loan will automatically move to the variable rate.
Home buyer’s tip: unsure whether you should go variable or fixed? At Gateway, you can do both! Using our loan splitting facility, you can keep a portion of your loan fixed, and a portion variable. Get the security of a fixed rate without risking missing out on a good deal if the market changes.
Home loan features: what features should I look out for?
A fee-free extra repayments facility is one of the most beneficial features because it lets you make additional payments on your mortgage (on top of your regular repayments). The benefit to you is being able to bring down the principal and pay less interest, saving you money in the long run.
Home buyer’s tip: use our Extra Repayments Calculator to see the difference that paying off interest faster makes to your total loan repayments.
A redraw facility allows you to dip into extra repayments that you’ve made on your loan. This means that you can pay down your debt faster and down the line you will have available funds to accommodate for major expenses such as home renovations, new arrivals to the family, or career changes.
Offset accounts are a great alternative option to making additional payments onto your home loan, like you would with a redraw facility. Attaching an offset account to your home loan means that any money in the account is offset against the home loan principal, meaning you’ll pay less in interest. Plus, you have the added benefit of having easy access to the account to make everyday purchases, such as online transactions, bill payments, and debit card purchases.
Split rate facilities, as discussed above, mean you don’t have to choose between a fixed or a variable rate.
Home loan portability saves you money if you need to move houses down the track, allowing you to keep the same mortgage so you don’t have to pay a break cost fee or an application fee on a new loan.
Home buyer’s tip: while a lot of financial providers only offer features on their premium products and for a fee – at Gateway we believe in helping our Members reach their goals sooner, so all our loans come with fee-free extra-repayments, fee-free redraw facilities, and fee-free split loans.
A Gateway Bank Home Loan Specialist can help you decide which type of loan, and loan features, are best suited to your needs. Contact us today to start your home buying journey.