A home loan is a long-term commitment and getting the right answers from your broker is the difference between a smooth ride or a long road of frustration. And to get the answers that are right for you, you need to be open about your financial position and personal information. The more information your broker has from you, the better they can advise you. Here are the top 4 questions you should ask when shopping for a financial broker:
- What is the best type of loan?
A broker will find you the best loan based on the information you provide; hence it is important that you are open about your financial situation. Do not shy away from asking them about:
- Fixed-Rate Loans
- Variable Rate Loans
- Split Loans
- Principle and Interest Loans or Interest only
- What Is the Interest Rate?
Ask your broker what the current Interest rate is. Even the smallest rate increase can impact your overall payment.
An interest rate is just the base rate of the interest at which your bank will charge you. Your monthly repayment will be based on this.
- What Are All the Fees?
Before buying, you should know that home loans come with different types of fees. Some lenders can charge more than others, below are some of the common home loan fees:
Some lenders may charge an annual fee instead of an ongoing account-keeping fee on certain mortgages. This may be the result of a package loan, where the bank offers you deposit and credit accounts and a discount on your home loan rate, and charge you one annual fee.
Lenders may charge you with a monthly account keeping fee to cover the administrative cost of maintaining the home loan instead of an annual fee, this may also be referred as a ‘service fee’.
Some lenders may charge you an application fee for processing your mortgage application. There may be other additional fees associated with the loan which the broker can advise you on.
- Types of Home Loans
What home loan suits your circumstances is the first step towards the right package, here are some options below:
Fixed rate home loans allow you to lock the interest rate of a loan for a period of 1 to 5 years. The advantage is that it allows you to plan out your payments, the drawback is that you might not be able to break your loan or refinance during that period. There is also a limit on the amount of extra repayments you can make each year on fixed rate home loans. Each lender may have a different limit.
With a variable rate home loan, your interest rate will fluctuate with market trends. There is no penalty with this type of loan if you choose to make more payments, however the disadvantage is that your monthly payments may go up and down.
Split home loan is a combination of a fixed rate and a variable rate home loan. It provides the flexibility of a variable home rate and the security of the fixed rate home loan.
An Interest-only home loan is where you only pay the interest each month. It can be useful for investors who can claim interest as a tax deduction, or buyers who only plan on holding onto the property for a few years before selling it. An interest only home loan usually has a span of 1 to 5 years, after that it reverts to principal payments over the remaining term of the loan. At the end of the interest only period the debt will be the same as the start of the interest only period.
A loan borrowed against the equity in your home is known as a line of credit home loan. This type of loan gives you the flexibility to access the loan at any time and up to the agreed amount. This type of loan is generally set up against an existing property and not for a new property. A Principle & Interest home loan is where each monthly repayment reduces the principle amount owing as well as the interest component.