Choosing a Home Loan: Your Guide to Finding the Perfect Mortgage

Finding the right mortgage is a big decision, especially with so many choices. The choice of the right home loan is even more important for those buying their first home. For those refinancing, it is also a vital choice to secure their future financial condition.

But with all the different rates, terms, and loan features, how do you pick the right home loan? Have you thought about what really matters when choosing a home loan?

Keep reading to discover the things to note when choosing a home loan that suits your needs!

How Much Deposit Do You Need?

While a 20% deposit is ideal, you can still purchase with a smaller amount. If your deposit is less than 20%, you may need to consider Lender's Mortgage Insurance (LMI).

LMI is required when your Loan-to-Value Ratio (LVR) exceeds 80%, meaning you're borrowing more than 80% of the property's value. A smaller deposit can help you get the loan sooner, but a higher LVR could typically lead to extra costs.

What are the Best Types of Loans for You?

Fixed-rate Loan

This loan provides the security of a consistent fixed interest rate throughout the loan term, meaning your monthly repayments remain unchanged. This makes it easier to manage your budget. However, you won't benefit from any potential rate drops.

Variable-rate Loan

As opposed to a fixed-rate loan, a variable-rate loan offers flexibility, with an interest rate that can change over time. This means your repayments can increase or decrease depending on market conditions.

This option is suitable for those who are open to some risk and want the chance to benefit from lower interest rates with a variable interest rate.

Split Rate Loan

Want a combination of fixed and variable rates? A split-rate loan can divide your loan into two parts. This allows you to get the stability of fixed rates while potentially getting the benefits of lower rates on the variable portion.

Other loan types, such as interest-only loans or offset accounts, might also suit your needs. Specialized loans are available for specific professions, like physiotherapists, to meet unique financial requirements. If you're a professional, consider exploring the options for a physiotherapist home loan customized to your situation.

How to Compare Home Loans

Comparison Rate

The comparison rate reflects the actual cost of the loan by combining the interest rate with most fees regarding the loan. It reveals more accurately what you'll actually pay over time.

Then, using a calculator, you can compare the loans to find even a small difference and the best value for your financial situation.

Annual Fees

These fees are charged once a year by the lender and can vary significantly across different loans. They can impact your overall savings, so you must ensure you're ready for the total amount.

Interest Rate

The interest rate directly affects how much interest you'll pay over the life of the loan, influencing your monthly repayments and the total loan cost.

Monthly Repayment Amount

Your monthly repayment depends on the loan's interest rate, term, and additional fees. When comparing home loans, ensure that the monthly repayment is affordable and fits within your budget—less than 10% of pre-tax income is advised, especially when considering the type of home loan you choose.

What Fees Apply to the Loan?

When you take out a home loan, several fees may apply. Common fees include:

• Application or establishment fees for processing your loan

• Valuation fees to assess the property's value and settlement fees

• Legal fees

• Ongoing monthly or annual service fees

Additionally, you might face discharge fees if you pay off your loan early or refinance. Checking for extra fees, such as early repayment penalties or redraw fees, could affect your total loan cost.

Do I Need a Lender's Mortgage Insurance (LMI)?

If your deposit is less than 20% of the property's value, you might need a lender's mortgage insurance (LMI).

LMI is typically required to protect the lender if you can't repay the loan. It's most common for first-time buyers or those with a smaller deposit.

The cost of LMI depends on factors like:

• Your Loan-to-Value Ratio (LVR)

• The total loan amount

• The lender's guidelines

• Your job position

• The purpose of your property

If you plan to buy with a smaller deposit, include LMI costs in your overall budget.

Does the Loan Have Beneficial Features?

Key features to consider include:

• An offset account can help reduce your interest costs by offsetting your loan balance with your savings.

• A redraw facility to help access any extra repayments you've made.

• Flexible repayment options, such as the chance to make additional repayments without penalties.

Additionally, consider loans with interest rate discounts for loyalty or split loan options that allow you to combine fixed and variable rates. These loan features can provide long-term financial benefits, enhancing your overall mortgage strategy.