BUYING a house is a widely held dream that has become increasingly achievable for many. Interest rates have never been lower and competition between lenders for your business means it is easier than ever to design yourself a great home loan.
By taking these four simple steps you can make a blueprint for the perfect mortgage and pay off that pad as quickly as possible.
MAKE HOUSE RULES
Home loan rates – both fixed and variable – have fallen below the four per cent mark, data from financial comparison site Mozo shows.
The lowest variable rate for a standard $300,000 30-year loan is 3.98 per cent while the lowest three-year fixed rate is 3.95 per cent.
Choosing whether to fix or not comes down to your circumstances however always make sure you look beyond the ‘advertised’ headline rate.
The comparison rate includes all the fees and charges associated with the loan and is a better guide to what the true cost of your mortgage will be.
First-home buyers Bronik and Corinne from Channel 7 reality series House Rules bought their home in 2014 and chose to lock in their interest rate.
‘We decided to go with a fixed rate on our home loan over five years,” Bronik says.
‘The rate was quite good so we decided to fix it in and not have to worry about any variations.’
Banks have had their margins cut as interest rates hover at historically low levels, forcing them to look at other sneaky ways to sting customers.
The easiest way to do this is through fees and charges – lenders often hit customers with application fees, upfront fees, valuation fees and discharge fees.
‘It’s more important in most cases to get a home loan with a lower interest rate than worry about the fees,” says Mozo spokeswoman Kirsty Lamont.
Home loan fees do vary greatly – annual fees range anywhere from zero to $450.
So factor in these costs when choosing your loan but as Mozo spokeswoman Kirsty Lamont says, ‘fees shouldn’t be a deal breaker’ when choosing your loan.
Interest rates for deposit holders are so low – some in the two per cent range – so it’s hardly worthwhile parking money in the bank.
But building a home loan that has an offset account attached is essential to helping curb your interest bill.
It acts as an everyday banking account that’s linked to your home loan and will lead you on the way to cutting your monthly interest charges by leaving cash in the bank.
On a $300,000 loan, if you have $10,000 tucked away in your offset account, you’ll only pay interest on a balance of $290,000.
Lamont says an offset account is one of the easiest, no-fuss ways to help pay back your loan faster.
‘You can save around $30,000 on the life of your typical loan by having an offset account, it will save you a huge amount of money by basically doing nothing,” she says.
FINISH THE JOB EARLY
When signing up to your loan one critical feature is to make sure you can opt for weekly or fortnightly payments.
By steering clear of monthly repayments you will be well on your way to building the ideal mortgage, and Lamont explains why.
‘By making weekly or fortnightly repayments instead of monthly repayments you can actually reduce the amount of interest you pay on your mortgage because you end up paying a few extra repayments on your mortgage each year,” she says.
‘Find a home loan that offers you the flexibility of paying weekly or fortnightly and not just monthly.”
Make sure you make principal and interest repayments to cut down the money owed – usually investors opt for interest-only loans to reap the negative gearing tax gains.
If borrowers also receive cash windfalls or are lucky enough to receive a cash windfall tip the extra money into paying back your home loan.