House hunting is one thing. Finding and securing a mortgage is a whole other challenge.
How can you be sure that you’ve selected the perfect mortgage? How do you know if your chosen home loan will continue to benefit your family in 5-10 years?
The truth is, there is no perfect mortgage. That being said, which mortgage solution you opt for should depend on your unique circumstances. Let’s take a look at this in more detail.
Your unique circumstances
No two households are the same. We all have different budgets, life plans, work situations, and property goals. It is vital to take a good, hard look at your circumstances. Here are a few points to get you started:
- How will your family change in the next five years? For example, are you planning to expand your family, or do you have older kids who are almost ready to move out?
- How will your work life and income change in the next five years? For example, are you planning to retire, or are you almost ready to re-join the workforce?
- Is your mortgage funding your forever-home, and investment property, or a temporary living solution?
Answering these questions should steer you in one direction or another.
Key factors to consider
A whole range of variables differentiate competing mortgages. Here are three of the key factors to consider.
1. Interest rate
Generally speaking, the higher the interest rate, the more you will pay over the lifespan of your mortgage. But it isn’t that simple. You will also be faced with the following options:
- Fixed rate: fixed rate loans boast the same interest rate throughout the lifespan of the loan. While this can be beneficial when the market causes interest rates to rise, it can also be frustrating when interest rates plummet below your fixed rate.
- Variable rate: variable rate loans boast a dynamic interest rate that changes with the market. While this can be beneficial when the market causes interest rates to drop, it can lead you to pay more for your property over the long-term.
2. Repayment type
There are two main types of repayments you can make, both with advantages and disadvantages:
- Principle and interest: when you make a payment, one portion is sent toward paying off the interest and the other is sent toward paying off the original loan. While these repayments are usually higher, they allow you to pay off more of your loan.
- Interest only: when you make a payment, the entire sum is sent toward paying off the outstanding interest. While these repayments may be cheaper, you will not repay back any of the original loan.
Many Australians opt for one of the big four banks. Other choose to work with a smaller lender. It’s worth conducting some research to determine which type of lender best caters to your circumstances.
There’s no right or wrong decision
At the end of the day, there is no right or wrong decision when it comes to deciding on a home loan. Go for the product that works best for you.