How To Choose A Mortgage That Best For You

For a list of loans available from multiple lenders, you can always go to one of the online comparison sites and see what’s available. These sites however do not take your financial goals and needs into consideration when listing all the loans available from different lenders, it’s like going to a fruit market to buy a pair of designer jeans?

Buying a home, which is likely one of the biggest purchases you will make during your lifetime, should be no different.  Your home’s mortgage can have implications lasting sometimes 30+ years, so choosing wisely is in your financial interest.

You spend so much time shopping for the right property, ensuring every checklist is completed, so why use a generic comparison site or just one lender to find the best value loan for you?

1. Be Reasonable with Your Borrowing Capacity

A great tool you can use to determine how much you can afford to spend on a home is a mortgage borrowing power calculator. Some key factors to consider are how much you (and anyone else who will be contributing to the mortgage) make on an annual basis, along with your monthly bills (Cost of Living) and how much you need to save. Remember to consider cost associated with a new mortgage like Government fees and lenders mortgage insurance.

2. Request and Review Your credit Files

Your credit history is one of the determining factors for whether you qualify for a mortgage. Typically, lenders look at how much and how often you seek unsecured debt as this shows how good you are at managing your finances.

Personal loans, car loans, credit cards, pay day credits and credit-lines are all considered unsecured lending. Everyone is entitled to request a free copy of their credit file annually, before you borrow, request your file and ensure that there are no surprises or unknown defaults stated.

Note, Australia is now progressing into positive credit reporting practices and your repayment history, active debt and loan application history are all stated on your credit file.  For this reason, declare ALL your debt on application to avoid mortgage application being declined for undeclared debt.

3. Is It Better to Borrow with The Big 4 or One of The Smaller Lenders

You should borrow with whichever bank gives you the best mortgage value for your needs, keeping in mind, some of the Big 4 operate under different names and pass themselves off as either a separate lender or as ‘regional’ bank. The fact is, these sub brands are actually the Big 4 just operating under a different name and nothing more.

4. Choosing Between Variable and Fixed Home Loans

When you have decided which loan will work best for you, you need to decide on a fixed or variable rate. The interest rate on a fixed loan will remain constant throughout the fixed period of the loan. For many, a fixed-rate loan will be a good option, because your mortgage payment will remain the same and give certainty at the start of  mortgage.

Variable-rate mortgages have interest rates that fluctuate or reset at specific times (Honeymoon rates). Variable loans allow you to make unlimited extra payments and have 100% offset options with package loans. Introductory rate aka honeymoon rate mortgages can trap a borrower in a high interest loan if they forget to refinance when the honeymoon rate expires.

Variable mortgage can often be a good option for those who do not want to stay in their home for more than a few years or refinance to a better value loan at will as unlike a fixed mortgage, there are no loan break fee typically just loan discharge cost.

5. Get Expert Advice on Lender Options and Borrowing estimates

No two mortgages or mortgage companies are the same. Just a half percent difference in interest between one lender and another over the course of 30 years on a $500K home can mean tens of thousands of dollars being lost over the life of the loan!

Also, be careful not to run your credit file too frequently by applying through multiple lenders or brokers. While credit bureaus and lender have come to expect rate shopping, you want to ensure that any request are done within a certain time period, at loanshub.com.au we recommend within a 7-day period to be sure.