How to choose the right home loan

So you’re ready to choose a home loan? Choosing the right home loan for you can be tough when there are so many options out there.

You probably see ads on your social media accounts from different institutions telling you how great their loans are and how they have the best home loan rates around.

When looking for a home loan, it’s important to not rush things. You don’t want to get caught up in rates for example, and miss out on other benefits of certain home loans that can help you in the long-run.

We’re here to help you get down to the nitty gritty and know what to look for in a home loan. 

What are the different types of home loans?

First off, what are the different types of home loans that are available?

To break it down, you have:

  • Basic loans - These loans are your run of the mill, everyday loans that boast low interest rates (yes those ads we mentioned). They typically have little to no other benefits.
  • Standard loans - Standard loans will usually have pretty market standard interest rates but you can also have flexibility and features like a redraw facility, split loans or offset accounts.
  • Home loan packages - Usually give you access to a discounted interest rate, as well as things like a free transaction account and a no annual fee credit card. For example, the Premier Package Home Loan.

Selecting between these three options really depends on what you’re after. It’s also worth looking at whether or not you’d want a fixed or variable interest rate. Interest rates will change depending on the market, so it’s worth researching what your rate would be now and what it could be in future.

You’ll also need to consider things like whether you’d like to have principal and interest repayments or interest only payments. 

Principal and interest loans

Principal and interest loans mean that you’re paying off both the home loan amount and the interest in your repayments over an agreed period of time. 

Interest only loans

Interest only loans are, as they suggest, loans where you purely repay the interest amount. This option is useful for example if you’re an investor. 

If you’re an investor and have an investment property, you can potentially claim higher tax deductions based on these payments. 

We recommend chatting to a professional to see what is most suitable for your circumstances. 

Home loan features to look for

So what exactly should you be looking out for? This is a tough question as it really depends on your situation. 

We’ve listed a few questions to ask yourself when assessing home loans:

  • Can I make extra repayments without fees attached?
  • Is it possible to split my loan across variable and fixed interest rates?
  • Can I add an offset account to my home loan?
  • Are redraw facilities available if I need them?

Have a think about what your priorities might be and rank them by importance. This can help you focus on what matters most when you’re assessing home loans. 

Things to keep in mind

Not every lender is the same, but it’s worth keeping an eye out for certain fees or additional costs that you may not have accounted for. 

Most fees are standard across the board, however, you may find yourself a promotion where certain things are waived.

These fees include things like:

  • Application or establishment fees
  • Valuation fees
  • Lenders Mortgage Insurance
  • Monthly or annual fees
  • Break or exit costs

You’ll also want to factor in your repayments and any comparison rates that are given. Financial providers will always show their home loan interest rate, paired with a comparison rate. 

A comparison rate includes the interest rate, as well as any fees that are related to the loan. This rate gives you a better idea of the true cost of your home and is based on the same factors across institutions. This makes it much easier for you to compare across institutions. 

Once you have interest rates to compare, you can use a loan repayment calculator to understand what your repayments look like based on what amount you’re looking to borrow.

What’s next?

If you’ve figured out what home loan you’re after, it’s worth applying for pre-approval so that you can shop around knowing what you can possibly borrow. 

If you’re still unsure on what home loan might be suited for you, or if you would like to simply talk through your options, you can call our friendly customer service team on 1300 654 822 and chat to a lending specialist today.