1. Home Loan Comparison
One of the first things that you should know is the importance of comparing lenders and loan products. Different lenders offer different products and interest rates, one lender may offer a financial solution that is more suitable to your personal circumstances than another lender.
Like buying anything in life, it pays to shop around to find the best deal. Lenders offer key facts sheets which give you all of the information needed to compare loan products.
If you're using a mortgage broker then your broker will do this for you. Iconic Home Loans have a network of over 30 lenders, so comparing home loans is significantly easier for our brokers who possess knowledge of loan products from such a variety of lenders.
2. Variable Rate, Fixed Rate and Split Rate
When choosing a loan, you’re likely to have the option of choosing a variable, fixed or split rate loan.
A variable rate loan means that the interest rate changes, usually in line with economic factors and the cash rate decisions. A fixed rate loan means that the rate won't change for the fixed period. A split rate loan is a combination of a variable and fixed rate loan, where part of the loan has a fixed interest rate and part has a variable interest rate.
There are pros and cons to each of the above options, and the option most suitable for you will depend on your personal circumstances.
3. Redraw Facility and Offset Accounts
A redraw facility can be included in your home loan, and will allow you to make extra repayments on your loan that you can later withdraw if you need to. An offset account is a separate transaction/savings account which is linked to you home loan, and the balance of this account is taken off the amount owing on your loan. This can reduce the interest that you pay on your home loan.
Sometimes features like the redraw facility and offset account will come with a higher interest rate or product fee, but are definitely still worth considering.
4. Construction Finance
If you are building your new home, the loan process is significantly different. With a construction loan you will withdraw funds in stages as you receive bills from trades people and suppliers, and you will only pay interest on the funds you have used.
Approval for a construction loan requires different documentation such as building plans, permits and contracts. As they involve more work, brokers seem to avoid construction loans… however, using a construction finance broker is vital. At Iconic Home Loans construction finance is our speciality as we work alongside some of the largest building companies in the state, so if you are considering building a new home your Iconic broker can take you through it.
5. Principal and Interest Loans and Interest Only Loans
Most people take out a principle and interest loan, this means that they will make regular repayments against the principal (amount borrowed) as well as paying interest. Alternatively, you can also take out an interest only loan, where you only make repayments that cover the interest on the loan. This option means that you will pay more interest over the term of the loan but can still be useful, especially for investors, to help you maximise the amount you can borrow.
Loans are generally interest only for a set period of time, and once this period ends you'll either need to increase your repayments to pay off the principal or pay out the loan in full.
6. Refinancing Your Home Loan
Interest rates constantly change, and what was the most suitable financial solution for you say 2 years ago, may not be any more. Your home loan should be reviewed annually, so that your broker can assess whether there is potential savings to be taken advantage of through refinancing. Refinancing can save you money and reduce your loan repayments.
Thanks for reading and don’t hesitate to contact Iconic if you have any questions or require our assistance with anything!