Buying a house is exciting, but your bank account might not be as eager as you are. Considering that financial situation, a home loan would probably be the biggest financial commitment you’ll ever make. Know the things to consider when choosing your first home loan and how much of your savings you are willing to spend. Begin by preparing yourself in reality and determining the true costs.
Most of the time, people look at a lot of places first before they find the right home to buy. Well, that’s certainly a good idea so you can also be as careful when choosing your first home loan. Overtime, repayments are highly likely to cost you a lot more than the price of your home.
The amount you can borrow for a home depends on a number of things like, how much can you afford to repay on your existing income and how much the lender will grant you. Lenders want to be certain that you’ll be able to manage your repayments and still have sufficient money left to live on.
There are different type of home loans you can choose from, each with its own interest rate, charges and terms of flexibility. All these aspects affect how much the loan would cost and when it would be paid off. Continue reading to get an overview of the things you may need to consider when choosing your first home loan.
• Your home loan options are more flexible and more personalized today than ever before. You may prefer a shorter period loan with higher repayments or pay a little less, for longer. You may prefer the flexibility of a variable rate, or the certainty of fixed rate.
• Which interest should you choose- variable, fixed rate or split loans? You’ll have more options with a variable rate home loan because the interest you pay can change any time. While it also seems a bit risky if rates would go up, you can also opt for certainty with a fixed rate home loan wherein you’re updated with your repayment schedule and as the name suggests, your interest rate is fixed for a certain period. Lastly, there’s a split loan in which you can enjoy the benefits of both flexibility and certainty.
• Having a home loan doesn’t stop once you’ve signed the forms. It comes with different forms of ongoing service charges that could cost you thousands over the life of your loan. Unless you’re going to use most of the home loan features, opt for a home loan with no ongoing fees and less features.
• Reduce the amount of interest you pay with an offset account. You can pay by depositing your salary into an offset account attached to your home loan. An offset account works just like a regular bank account and some also come with a debit card for your everyday purchases.
• Make extra repayments to minimize the life of your loan. Signing up with a home loan that allows you to make free extra or lump sum repayments is a wise decision as it’ll help reduce the term of your loan once you come into more money.
It’s always good to understand the basics whether you’re still deciding or you’ve just taken out your home loan, it is essential to understand and make the most out of it. Remember to match the payments you will be making to your current income to avoid drowning in debt.
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