Choosing the right loan

Choosing the right loan makes your money work harder for you. However, deciding which loan is right for you can be overwhelming and confusing, due to the wide variety of home loans available—all with different interest rates and features.

The good news is that as your mortgage broker, we can help you understand your options and assist you during the loan selection process. Mortgage brokers are home loan experts and perform significant research on a variety of home loan products, from a range of different lenders, to find the ones that may be most suitable for you.

Below are some of the more common loan products available. However, this is just a selection. Talk to us to find out about any other loan products which may be right for you.

Basic home loan

This is an excellent option if you’re looking for a simple loan with a low variable interest rate, and low fees. Basic home loans have fewer features and can be less flexible than other loans. However, they do offer opportunities to save money. They are a good option for first home buyers and those with straightforward borrowing requirements

Standard variable loan

Standard variable rate loans have more features than a basic home loan, including the benefit of an offset account and/or redraw facilities. Money held in your offset account will ‘offset’ the balance in your mortgage account, effectively reducing your interest payments. Lenders will charge an annual fee for this type of loan.

Redraw facilities allow you to make extra repayments on your home loan and redraw them later if needed. It’s also an effective way to save money on home loan interest

Introductory rate home loan

This type of loan is suitable if you’re looking to minimize your initial home loan repayments. It offers new customers a reduced interest rate and lower repayments for a set time, usually six to 24 months—often referred to as a ‘honeymoon period’. Once the introductory period is over, the interest rate reverts to the standard variable rate.

Fixed rate home loan

Fixed rate home loans allow you to lock into an interest rate for a period, which can be anywhere from one to seven years. This means you can enjoy the certainty of knowing exactly what your monthly repayment will be. After the fixed term, these home loans usually revert to the standard variable rate. With this type of loan there is not always a redraw facility or the opportunity to make extra repayments during the fixed rate period.

Split home loan

A split loan offers you the option of having part of your loan fixed and part variable. This gives you the benefits of both loans in a single home loan. Contact us for more information about this type of loan and how you could use it to your advantage.

Understanding home loan costs

The actual costs involved with taking out a home loan will depend on the kind of loan you need and the lender you choose. Fees and charges can vary widely from lender to lender.

Your mortgage broker will make sure you understand all the costs involved and will provide this information to you in writing before you take out a loan.

Here are expenses that you may incur when taking out a home loan:

Loan application fee

Also known as the “establishment”, “up-front”, “startup” or “set-up” fee. It’s a one-off payment at the start of your loan application process. The fee usually covers the preparation of loan documents, the lender’s legal fees for loan set-up, and one standard home valuation by the lender’s property valuer.

Ongoing fees

Ongoing fees are charged every month or year by the lender for administrating your loan. Other fees and charges may only be payable in certain circumstances. For example, you may be charged a fee to use a redraw facility to withdraw any extra repayments you have made towards your loan.

Early exit fee

This fee may be charged if you pay off your home loan in full within a specified time, or with certain types of loans. Your mortgage broker will advise you about these exit fees, and if they may apply to the loan you decide to select.

Lenders mortgage insurance (LMI)

LMI is a type of insurance required by law to protect lenders if borrowers default on their loan. If you borrow more than 80% of the value of your property, you will have to pay for LMI and it can be expensive. That’s why we recommend you save a 20% deposit. However, paying LMI may be worth it to you if it helps you get on the property ladder sooner.

Stamp duty

Stamp duty is a tax imposed by local governments on home buyers. It varies from state to state. To find out how much stamp duty you have to pay in your state, check your local government website. Alternatively, you can also find out more by speaking with your mortgage broker, conveyancer or legal representative. There may also be discounts available for some home buyers.

Legal representation

When purchasing any property, it’s important that you acquire the services of a trusted conveyancer or solicitor. This ensures that you meet all your legal obligations and that all contracts are fair and transparent. Be aware that different legal professionals will have different sets of fees for certain services, so don’t be afraid to shop around. You can always ask your mortgage broker for a referral.

Inspections

A building inspector is very important when considering a property to purchase, so you’ll need to factor in this cost. A building inspection helps you determine if the property is structurally sound and could potentially save you thousands by helping you avoid properties that could require expensive repairs. A professional building inspection report can also serve as a bargaining tool for negotiating on price, or contracts.It is also wise to get a professional pest inspection report. Pest inspectors are specialists in detecting termites and their damage, as well as other home-wrecking pests, so you’ll need to use one in addition to your building inspector, particularly if the property is in a high-risk area.