While the current financial climate means that many financial institutions are offering the most affordable interest rates in decades, it is vital to avoid choosing a home loan based on interest rates alone.
Whether you choose a variable, offset, fixed rate, split rate or interest only loan, or any of the various credit related loans available, it is important to be realistic in your assessment of your current and future situations; of borrowing beyond your means.
When considering a home loan, many buyers are so swayed by the idea of low interest rates that they unwittingly borrow more than they should. To avoid this, and to avoid the financial implications thereof, buyers must take into account future possible fluctuations in the market rate, changes to their personal situations, daily living expenses, loan fees and repayments, and the property to be purchased.
First off, the buyer must choose a house they can reasonably afford. This means that before attending any property inspections, the buyer must sit down and determine their exact requirements for the property. Doing so will reduce the risk of emotional purchases which can leave you with a severe case of buyer’s remorse.
After determining exactly what your property needs, as well as determining the approximate price range for the purchase, the buyer must then calculate the numerous other expenses which will drain the wallet. These expenses include living and maintenance costs, as well as a possible repayment schedule. Once you have tabulated the various costs involved with your house of choice, as well as the living expenses and various loan fees and repayments, prepare a thorough budget detailing your total expenses. Paying attention to the details will hold you in good stead in the long run as you are able, to the best of your ability, prepare for your future.
When applying for a loan you must remember to never choose the maximum amount a lender is willing to offer. Doing so means there is no way to decrease the repayments should the interest rate increase. As the buyer is often restricted by the type of loan you don’t wish to compound this by signing up for the maximum amount; looking into the various loan types and ascertaining which would suit your individual situation is vital to ensure you have some room to move over the coming years.
Another important thing to consider when applying for your loan is to pay attention to the fine print. Different home loans will have different bank charges; there may be application fees, valuation fees, mortgage insurance, legal and account keeping fees, as well as an overall fee. All these costs must be included in your budget, and will help you determine which loan is right for you.
Searching for the right house, the right loan, all while compiling a thorough budget which leaves you with enough disposable income to cover emergencies can be quite the task. We here at Lockwood & Ward are more than happy to assist so please feel free to call us on 02 9299 7044.