One of the things I’ve learnt about the Mortgage Industry is that it never stops changing. New products, rates, credit policies etc means that I always need to be learning in my role to keep up. You can never ‘know it all’.
Customers ask me all types of questions and it’s no surprise that the same ones come up time and again. Here is three that I hear all the time.
They might sound basic, but get them right and you’re on your way to making smart decisions about your money and keeping more of it in your pocket.
I should get the cheapest rate loan, right ?
Well, sometimes – but not always. You see, lenders love to grab your attention with a low ‘headline rate’, but you need check the * next to the rate. In Australia, you can’t advertise an interest rate without the comparison rate mentioned as well (that’s the asterix bit). The comparison is the actual interest rate plus any fees and charges associated with the loan.
The comparison rate will tell you if the loan with the cheapest interest rate, is in fact, more expensive, when you add in the fees and charges. This enables you to then compare that loan with others that may have higher interest rates but no charges or ongoing fees – to see which is the cheapest overall.
Which is best Fixed Rate or Variable Rate ?
I’d love the ability to be able to predict what is going to happen with interest rates. But to be completely honest, there are so many factors at play in the market today it is way to difficult to try and guess what is going to be happening 2, 3 or 5 years from now.
If either a fixed or variable rate would suit your situation ask yourself the following:
“How would you feel if you had a fixed rate loan and interest rates went down (meaning your loan wouldn’t change)” ? versus
“How would you feel if you had a variable rate loan and interest rates went up (your loan rate would increase)”?
You should then choose the option that makes you the least uncomfortable.
Principal & Interest v’s Interest Only repayments
Principal & Interest loan repayments = paying the interest on the money borrowed plus a small amount of ‘principal’ at each repayment. These loans have a balance that is reducing over time as you ‘pay them off”.
An interest only loan repayment = each repayment that only pays the interest due on the money borrowed. The loan balance does not reduce and the loan is not actually being paid down. These loans attract a lower repayment amount than principal and interest.
Before you make a decision about which is right for your loan, you must consider: 1)what the loan is for 2)how long you intend to remain in the loan; and 3) what your end goal is for property
There is great information about interest only loans at MoneySmart a financial guidance site that is impartial and put together by the Australian Government.
Got more questions ? email email@example.com, I’d be happy to answer them.