Buying your first home is an exciting but stressful undertaking. In addition to finding the right house and property, you need to make sure to get your financials straight. Signing the contract that makes the transaction official will be among the biggest financial decisions you make in your lifetime.
That thought can quickly become overwhelming. Fortunately, even taking just a few steps to better understand your mortgage will help make the decision both less stressful and more informed. Here are 5 questions you should ask about your mortgage lender before signing that will help you make sure you sign the right home loan for your needs.
1) Will the Home Loan be Fixed or Variable?
One of the most important considerations in choosing a home loan is its interest rate. In most cases, your credit and financial history will determine a general range in which your rate will fall, though some providers may differ slightly in that regard. However, it can change drastically based on whether you choose a fixed or variable interest home loan.
A fixed rate home loan will keep your interest rate at the same level as it is at signing for the duration of the repayment process. As a result, you can budget more easily, and are protected against potential future rate rises.
On the other hand, variable interest typically starts at a lower rate, offering initial savings. Rate drops due to a good economy will benefit you further, and the repayment process is typically more flexible. Which of the two you choose depends on how much you value dependability vs. potential cost savings.
2) How Flexible is the Repayment Process?
Speaking of flexibility: another variable you need to consider before signing the mortgage is how flexible your repayment plan will be. Typically, your payments will be due once per month. But within that schedule, you might have additional options, such as:
- Making additional scheduled payments directly on the principal, which will result in paying off your loan more quickly.
- Making a single, lump sum payment on your mortgage, with the same result as the above.
- Repayment holidays, which allow you to miss a payment without fee during an important life event – such as having a baby.
Not every loan offers this type of flexibility. Understanding whether your mortgage does is vital to making sure your financial situation is ideally suited for the contract you’re about to sign.
3) What Additional Fees do I Need to Be Aware of?
Some loans require application fees. Others may include regular processing fees, while others only require fees when you change your loan or port it to a different financial provider. Each mortgage is unique, and you need to know exactly what fees will apply to you at the time of and after signing the mortgage contract.
The Securities and Investments Commission (ASIC) has a great overview of the fees that could apply to your individual loan. It makes sense to take a closer look at each of these, and compare them with the contract you’re about to sign. The more transparency, the better.
4) What About Offset Accounts and Redraw?
A number of mortgage options in Australia offer home buyers the option to use their home loan as a type of savings account that also saves on the interest you have to pay against the money you initially borrow. More specifically, you might be able to take advantage of one of two features:
- Offset Account, which is essentially a savings account you pay into, and is connected to your home loan. It collects interest at the same rate as your home loan draws interest, meaning that both interest rates offset and you will have to pay less over the life of the loan.
- Redraw, which works similarly to offset accounts. In this case, you’re not paying money into a separate savings account, but actually making payments above your minimum payment. These extra payments will reduce your interest rate but can be withdrawn if you end up needing the money.
Again, not all mortgages offer either of these options. Finding out whether the contract you’re about to sign does can help you plan your finances and make a more prudent decision.
5) Do I Need a Mortgage Broker?
Finally, it makes sense to start considering early whether you should consider engaging a third-party professional on helping you find a loan that suits your needs and better understand the contract you’re about to sign. As Youth Central points out,
Mortgage brokers can save you the hard work of going from lending institution to lending institution to find out what kind of home loan options are available and best suit your needs. Be aware however, that some brokers have hidden fees or may only deal with a small set of lenders. Make sure you do your research and have a list of questions for your broker.
In other words, engaging a qualified professional helps you make a more informed decision while saving you work. But their additional fees may increase your financial crunch. This article can help you find a mortgage broker that will allow you to make the best decision possible.
Getting your mortgage straightened out is arguably the most stressful part of buying your first home. But the more you know about the documents you sign, the better prepared you will feel, and more your stress level will sink. Ask and answer the above questions, and you will feel confident in signing a contract that is in your best interest.
Are you ready to sign your contract of sale? Then you better have a conveyancer read over the document to9 make sure everything is in order. Get in touch with the team today.