A home loan is a long-term financial commitment, so it’s essential to choose the best one for you. A home loan comparison guide can help you narrow down your options and find the right mortgage that meets your requirements.
The Break-Even Period
According to Freddie Mac, your break-even point is the point at which your home loan costs less than another option you are comparing. Understanding this number is critical when selecting which home loan works best for you as it determines which option has the lowest monthly payments.
In many cases, the break-even period won’t be as long as you think. For instance, if you’re comparing fixed rate loans, there may not even be a break-even point at all. Therefore, it’s more important to factor in how long you plan to remain in your new home and when you expect to pay off the home loan.
The Loan Calculator
A loan calculator can be an invaluable asset to quickly compare multiple loan offers. It displays how much each home loan will cost you up front, each month, and over the life of your mortgage – providing you with information to make an informed decision on which mortgage best suits your lifestyle and financial objectives. With this tool, you’ll know exactly what each home loan will cost you in total costs over its tenure.
The Comparison Rate
According to Michael Mardiasmo, senior manager for mortgage products and advice at Finder, a comparison rate is the rate a lender advertises that does not include certain fees and charges. These can affect the total cost of a loan.
Fees and charges include those for making repayments, using redraw facilities, using certain features in your loan, legal representation fees valuation fees and settlement costs.
Some lenders provide lower rates on loans by charging upfront fees, known as mortgage points. But it may not be worth it for everyone; if you plan to sell your home within the next few years, spending that extra money may not make financial sense.
Another type of fee is an annual service fee, which covers the cost of maintaining your loan. You may also pay for additional features in your loan such as redraw capacity or offset accounts.
If you want to save on fees in your loan, there are a few steps you can take. One option is choosing a fixed-rate loan or taking out an interest-only loan – these will ultimately help you save money over time.
Start by checking with your local bank or credit union, which likely offer mortgages. They may even give you a discount if you have an account with them or participate in their first-time homebuyer program.
Once you’ve selected a home loan, it is essential to get estimates from several lenders. Studies have revealed that buyers who receive quotes from at least three lenders often end up receiving the most advantageous deal.