Every mortgage professional will tell you that finding a good mortgage deal is not simply finding a loan with cheap interest rates. There are many factors that you have to take into consideration (i.e. ongoing fees and other costs, mortgage flexibility, lender’s quality of service) before you can actually say that a mortgage loan is a great deal.
Mandatory home loans comparison rates were pushed to give borrowers a better understanding of the genuine price tag of a mortgage product once all the charges and fees have been factored in. however, there are some loan features which will be difficult to determine.
While cheap interest rates would seem irresistible to many, one would still have ensured that a loan includes the necessary features. Most first home buyers, because of their inexperience with the mortgage process, are prone to this particular mistake. By researching early on, borrowers can gain an understanding of the different properties of a home loan product. They also get a clear picture as to how a certain loan would perform in the future.
Here are the most common loan choices in the market:
Basic Variable Loan:
This type of variable rate loan comes with the most basic features (or none at all) that usually come with standard variable loans. The lack (or absence) of loan features means this type of loan comes with the low-interest rate.
Standard Variable Loan – Standard variable loans are generally flexible thanks to the following features: redraw facility, additional repayments and offset accounts.
Fixed Rate Loan – When you take out a fixed rate mortgage, you agree to have your interest rate fixed for an agreed upon period of time, which is usually between 1 to 5 years.
Locking your loan in fixed rate means you won’t be affected by any kind of rate increase in the market. But once the agreed upon period is over, the loan will automatically revert to the standard variable rate set by your mortgage lender.
Honeymoon/Introductory Rate Loan – Under this type of loan, the interest is incredibly low during the ‘honeymoon’ period, which is normally the first 12 months of the loan.
But once the honeymoon period expires, expect the interest rates to soar, sometimes even beyond the industry rates. This type of loan is good for first home buyers who need to adjust and get used to the monthly mortgage payments.
The line of Credit/Equity Loan – With this loan type, the borrower is able to draw funds through the stored equity in their property. Deemed as more suitable to existing property owners due to the equity requirement, the line of credit or equity loans usually come with higher mortgage rates than standard variable mortgages.
Home loans comparison allows you to determine which type of loan will fit your circumstance. By narrowing down your choices, you’ll have better chances of picking the right loan and avoiding those that could put you on the wrong end of a financial situation.