Match the type of home loan to your needs
There are a number of different types of loans to choose from. How do you decide which is the home loan for you? The best place to start is to consider what you need from a loan. Then select the type of loan that fits those needs. In doing so, make sure that you are not paying for additional features you may not need.
As an example take your everyday variable rate loan. What features will match your financial habits? The two most common that are available with just about every variable rate loan are:
- The ability to make additional repayments either as regular amounts or adhoc lump sums without any penalties
- A redraw facility that allows you to redraw additional payments
Whilst the first feature doesn’t vary much, the second takes a little more consideration. Some loans have a redraw fee of $20 or even $50 per redraw, others are free. If you made a redraw once or twice per year, the fee is not so important. But, if you’re making regular redraws as part of your financial process, no redraw fee is very important.
Another common feature is an offset account. Using it properly can save you interest, but you need to include the cost of having an offset in determining if it’s worthwhile. If you had to pay an annual fee of $395/year to access an offset account, perhaps a slightly higher interest rate and only a small balance of cash in your offset, it may not make financial sense. A simple basic variable loan may be a cheaper option.
The key message is to make sure that you get what you need and don’t pay for what you don’t need. Small fees and charges have a big impact over time.
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