Here’s a checklist of features to look for before you choose a home loan:
- Do I need Lenders Mortgage Insurance (LMI)?
- How much of a deposit do I have?
- What fees apply to the loan?
- What is the interest rate on the loan?
- What’s the best type of loan for me?
- Does the loan have features important to me?
If you have less than a 20% deposit, you may need to pay for lenders mortgage insurance. Lenders Mortgage Insurance is a premium payable by you the borrower that protects the lender (financial institution) against potential losses if you are unable to repay your loan. Learn more about Lenders Mortgage Insurance.
Different lenders offer loans with different Loan to Value ratios (LVRs). The LVR is the percentage of the loan amount that you are able to borrow from the lender.
There may be a number of fees charged on different features of a home loan, including:
- Application fees (also called establishment fee)
- Property valuation fees
- Ongoing fees such as annual fees
- Late payment fee (also called default fee) (if you make a required repayment later than the due date)
- Early exit fee (if you repay your home loan in full and close the loan before the end of the loan term)
- Discharge fee (also called termination fees or settlement fees) (charged when you pay out your mortgage in full)
- Break fees (also called break costs) (if you switch loans during a fixed rate term)
- Redraw fees (if you use a redraw facility)
- Account-keeping fee for offset account (if you have an offset account attached to your loan)
- Lender’s Mortgage Insurance (LMI) (if you only have a small deposit on your loan)
Lenders will typically display a current/advertised interest rate and a comparison rate.
The advertised rate generally is just the interest rate, and it does not include the cost of any fees or charges.
Another home loan feature to look for is the decision between fixed or variable. You will need to weigh up the pros and cons for your individual circumstances to get the low-down on the benefits of both types of loan. Plus check out our fixed vs floating article.
Remember some loans have the ability to split your loan so that a proportion of the loan amount is variable and the remaining portion is fixed.
While interest rate, fees, deposit and repayment amount are important things to consider when taking out a mortgage, you should also check out what features are on offer in a home loan that you might be considering. Some home loan features to look for include:
- An offset account
- A redraw facility
- Ability to make extra repayments
- Ability to make lump sum repayments
- Ability to split the loan between fixed and variable
- Ability to get home loan pre-approval
The factor that will have by far the biggest impact on the overall cost of your loan is the interest rate – so ensure that you are not paying an uncompetitive rate.