Buying a home is one of the biggest financial commitments you’ll ever make, and choosing the right home loan is just as important as finding the perfect house. With so many options out there, it’s easy to feel overwhelmed. But don’t worry. We’ve got you covered!
By asking the following key questions, you can save money, avoid unexpected costs, and find a loan that actually works for you. So before you sign on the dotted line, take a deep breath and ask yourself these seven key questions.
1. What Type of Loan is Best for You?
Not all home loans are the same, and choosing the right one depends on your financial goals, lifestyle, and how comfortable you are with risk.
Here are your main options:
- Fixed-rate loan: Your interest rate stays the same for a set period (usually 1–5 years). This means predictable repayments, making it easier to budget. Perfect if you like financial stability and want to avoid surprise rate hikes.
- Variable-rate loan: Your interest rate can go up or down depending on the market. This means your repayments can change, but you could save money if rates drop. A great option if you’re comfortable with a little uncertainty.
- Split loan: Can’t decide? No problem! A split loan lets you fix part of your loan and keep the rest variable, giving you a mix of stability and flexibility.
Ask your mortgage broker:
- What are the pros and cons of each option?
- Can I switch between fixed and variable later?
- What happens when my fixed-rate period ends?
2. How Much Can You Borrow And How Much Should You?
Just because a bank offers to lend you a certain amount doesn’t mean you should take it all. Listen to your mortgage broker’s advice. Borrowing too much could leave you financially stretched, especially if interest rates rise.
This is what you need to think about:
- Your income & expenses: Can you comfortably afford the repayments without sacrificing your lifestyle?
- Interest rate changes: If rates go up, will you still be able to afford your mortgage? A small increase can make a big difference over time.
- Your future plans: Are you planning a career change, starting a family, or considering moving in a few years? These can all affect how much you should borrow.
Ask your mortgage adviser:
- How much can I borrow based on my income and expenses?
- What will my repayments look like at different interest rates?
- Are there any low-deposit home loan options available?
3. What is the True Cost of Your Loan?
Interest rates grab all the attention, but they aren’t the only cost you need to consider. Many loans come with hidden fees that can add up over time.
Here are some common ones to watch out for:
- Upfront fees: Application fees, legal costs, valuation fees… they all add up!
- Ongoing fees: Some lenders charge monthly or annual account fees.
- Exit fees: Planning to pay off your loan early? Some fixed loans charge penalties for early repayment.
- Refinancing costs: If you switch lenders later, there may be extra costs involved.
Ask your mortgage broker:
- What are the total costs of this loan over its lifetime?
- Are there any upfront, ongoing, or exit fees?
- If I want to refinance or switch lenders later, what will it cost me?
4. What Loan Features Can Help You Save Money?
Many home loans come with extra features that can help you pay off your mortgage faster and save on interest. But watch out. Some lenders charge extra for these perks, so make sure they’re worth it.
- Offset account: A savings account linked to your mortgage. The more money you keep in here, the less interest you pay on your loan. Great for reducing interest while still keeping access to your money.
- Redraw facility: Allows you to make extra repayments and then withdraw that money if needed. This can be useful for emergencies or unexpected expenses.
- Extra repayments: Some lenders let you pay more than the minimum repayment without penalty, helping you pay off your loan faster.
Ask your lender:
- Does this loan include an offset account or redraw facility?
- Are there any restrictions on making extra repayments?
- Do these features come with extra fees?
5. How Will Your Repayments Work?
Your repayment structure affects how quickly you pay off your loan and how much interest you’ll pay in the long run.
This is what you need to consider:
Repayment frequency
You can usually choose between weekly, fortnightly, or monthly repayments. Paying more often can help you save on interest over time.
Principal & interest vs. interest-only loans
- Principal & interest: You can pay off both the loan amount and the interest. Its the best way to build equity in your home.
- Interest-only: You only pay the interest for a set period (usually 1–5 years). Your repayments will be lower at first, but you won’t reduce your loan balance.
Ask your mortgage broker:
- Can I choose how often I make repayments?
- What’s the difference between principal & interest vs. interest-only?
- How much will I end up paying in interest over the full loan term?
6. What Happens if Interest Rates Change?
Interest rates aren’t set in stone, and even small increases can add hundreds or thousands of dollars to your repayments over time.
If you have a fixed-rate loan, your repayments won’t change during the fixed period, but when that ends, your rate will likely increase.
If you have a variable-rate loan, your repayments will change whenever interest rates move.
Ask your mortgage broker:
- What will my repayments look like if rates increase by 1-2%?
- Can I switch to a fixed rate if needed?
- What options do I have if I struggle with repayments in the future?
7. Should You Use a Mortgage Broker?
Finding the right home loan can be time-consuming and confusing, but a mortgage broker can make the process much easier.
Here’s why a mortgage broker can help you:
- They compare multiple lenders to find you the best deal.
- They explain everything in simple terms. No confusing bank jargon.
- They handle the paperwork so you don’t have to.
- They don’t charge you. Brokers are usually paid by the lenders.
Wrapping Up
When you choose the right home loan, don’t think only about getting the lowest interest rate. It’s about finding a mortgage that works for your lifestyle, financial situation, and future goals.
By asking these seven key questions, you’ll be in a much better position to make a smart, confident decision.
Need help choosing the best home loan? Oliver Broomfield Mortgages makes the process easy. We compare lenders, explain your options in simple terms, and guide you every step of the way.
Get in touch today and let’s find a mortgage solution that works for you!
