Buying your first home is one of the biggest financial commitments you will likely ever make, so finding the right home loan is one of the most important things you will need to do. Here are four of the major factors you’ll need to consider when you’re researching the best home loan for first home buyers.
Comparing interest rates
The interest rate can be one of the biggest stand out features of a loan and one that is easy to focus on when making comparisons between different loans.
When you are comparing rates, always look at the ’comparison rate’ for a true indication of the value of the loan as the comparison rate includes additional fees and charges associated with the loan.
While the lowest interest rate is obviously attractive, it doesn’t necessarily mean it will be the cheapest loan. Things like lack of flexibility in the loan could actually make it more expensive for you in the long run.
Look for the flexibility you need
For First Home Buyers a lot can change, and quickly. So how can lack of flexibility make a loan more expensive? When you have a flexible loan that allows you to make extra repayments or pay it out early, you can cut your interest costs over time because you end up borrowing for a shorter period of time. If you do plan on making extra repayments, this is one instance where getting a loan that potentially has a higher interest rate but more flexible terms can be beneficial.
Another feature that can be attractive to first home buyers that is available with more flexible home loans is a redraw facility. This feature can come in very handy if you have been making extra repayments but then need to access that money down the track for things like renovations or the costs of a growing family.
Offset facilities are also available with a number of flexible home loans which allow you to have a savings account that you use the balance of to offset your mortgage principle. If you have substantial savings, this can cut your interest costs as well.
What LVR do you need
Another big determining factor on the right home loan for First Home Buyers and the loans that you have to choose from is the Loan to Value Ratio (LVR).
LVR is simply the proportion of money you will be borrowing compared to the property value. As an example, if the property is valued at $400,000 and you have a deposit of $100,000 (20%), you will borrow $300,000 which is an LVR of 80%.
While an LVR of 80% or lower is optimal, there are plenty of loan products available for up to 95% LVR. When you do have a higher LVR, a home loan may cost you more as you will typically have to pay for Lenders Mortgage Insurance and the loans available to you may have a higher interest rate.
Consider a range of lenders
While it’s common for many first time home buyers to go straight to one of the major banks and it can be convenient if you have most of your financial products with one, it’s not always the best option. There are many smaller and non-bank lenders who offer loans with attractive interest rates and features. They can also be more flexible with catering to borrowers who don’t meet the mainstream lender’s criteria. In short, shop around or talk to a mortgage broker to help with the shopping around to find the best loan for you.
Lend Me – Mortgage Brokers – Perth, Western Australia