Getting a mortgage is one of the most important things a home buyer must do.
Since the Reserve Bank decided to raise interest rates again in June to fight inflation, getting the money you need is more important than ever. Since a mortgage loan is for a long period, the interest rate can change a lot.
When trying to get the best mortgage rate, there are many things to consider. The main goal should be to avoid mortgage stress, defined as spending more than 30% of your income before taxes on mortgage payments.
Mortgage default has serious consequences. On top of the large fines, you could lose your home and not get another mortgage for a long time. There are three different kinds of mortgages:
Basic
As the name suggests, a basic home loan has few extras and a lower interest rate.
However, due to the fees and penalties that come with early withdrawals, this may not be the best choice for borrowers needing access to their principal amount in the future. “Simple” loans don’t have any extra bells and whistles.
Standard
If you make extra mortgage payments, you can get that money back with a standard home loan but not a basic one. This gives you more financial freedom. For example, you can choose a fixed rate, or the loan can have both fixed and variable parts.
You can also make a completely offset account.
Package
Depending on the total amount of the loan, a package loan could lower your interest rate by up to 1.2%.
Even though this makes the package cheaper than many standard loans, the package costs may still be more than $400 a year. Lender rewards could be a loan with no interest or a credit card with a 0% APR, or they could be both.
For more information on home loans, you can contact real simple home loans for all your home loan needs.
Mortgage Evaluation Techniques
To get the best home loan, you need to look at a lot of things.
Interest rate: A lending organization’s interest rate is how much it costs to borrow money from them. The goal is to get a rate that is as close to zero as possible as a percentage of the amount of the loan.
Compare side-by-side: The comparable rate takes into account more than just the interest rate.
It also takes into account the costs of managing the loan. As a result, the comparable rate gives you a better idea of how much the loan will really cost and may seem like a more realistic interest rate.
So, in general, the difference between the advertised interest rate and the comparable rate is smaller when the offer is better.
How Much EMI: This is how much you will have to pay the bank or financial institution every month. To avoid putting too much financial stress on your home, you shouldn’t spend more than 30% of your income before taxes on mortgage payments.
Total Cost Each Year: If the mortgage is part of a package deal, the lender may charge a fee every year for the special interest rate that comes with the deal. So make sure that you can afford to live on that amount.
Additional Features: It’s also a good idea to look into the extra features of the house loan to see if they’ll be useful to you, like an offset account where you can put your income and savings to lower the amount you owe on the home loan.
Whether or not you can make extra payments without being penalized.
Think about whether the loan comes with a “repayment vacation.”
This lets you put off making home loan payments if, for example, you lose your job or get sick for a short time. During the Covid-19 shutdowns, some banks helped customers who needed it by giving them more time to pay their debts.
Fees And Charges
Even small fees can add up over the life of a loan, so it’s important to get a clear picture of how much the whole thing will cost. Fees for a typical mortgage usually include the following:
- A one-time fee may be charged if a loan is paid back before the date it was supposed to be paid off.
- Lenders charge redraw fees if a borrower uses money that was supposed to go towards paying off their mortgage to do something else.
- A break fee may be charged if a fixed-rate loan is paid off early or switched to a different loan type, interest rate, or payment schedule.
- Lenders charge ongoing fees to cover the costs of keeping customer accounts open.
- The cost of having a certified third party look at your property and give you the valuation fee covers an official value.
Conclusion
A home loan is a great opportunity for you to get your dream house. But before taking up a 20-year-long commitment, you best research properly.