Is The Lowest Interest Rate Loan Always The Best?
When you’re making your first move into the property market as a first home buyer, it’s easy to think that the lowest interest rate is all you need in a home loan. But it could be a costly compromise considering the features and benefits you would be giving up to get a low rate.
The lowest rate could cost you more in the long run, and you need to look at all the loan features and the fees involved with the loan before deciding if it’s right for your financial needs and lifestyle. Here are some of the things to be cautious about:
Introductory low rate
Some lenders will offer a low introductory interest rate to attract customers. You must remember that this is temporary and will usually revert to a higher rate which will cost you a lot more each month. Don’t forget that you will be locked in and it may cost a lot to change the loan to a cheaper rate.
You may know that the comparison rate, always shown next to the home loan variable interest rate, is an indication of all the basic loan costs, including fees and ongoing charges to be expected over the life of the loan. However, it does not include bank fees that are only charged in certain circumstances like ending a fixed loan term early and redraw fees.
One of the most important things to consider is flexibility. You might think that a no-frills loan with low fees is right for you in your current situation. But keep in mind that your lifestyle needs may change, and your home loan may not offer flexibility like loan portability if you decide to upsize to a bigger place.
Interest-saving loan features
What home loan features are important to you? Features like a 100% offset account and redraw facility gives you the flexibility and freedom to make extra repayments to reduce the balance of your loan and interest payable so that you can pay off your loan faster, while still having access to the extra funds when needed.
Hidden fees and charges
Another reason why the cheapest home loan may not always be the best, is hidden extra costs. What if the interest rates are expected to rise and you want to switch from variable interest rate to fixed? Or what if you’ve had a baby and would like to take a break from mortgage payments? A no-frills loan may be restricted or charge for all these ‘extras’, which might be standard with other loans.
Whatever you decide, it’s best to thoroughly research your home loan options and weigh up the pros and cons of each before making this potentially lifelong financial commitment.
At Mortgage House, we’re no strangers to the homeowner’s journey. It’s a long (but rewarding) one.
But don’t worry, we can help with that.
If you’re thinking of buying a home, you can contact us for information about the best options for you when it comes to your mortgage.