Whether it’s your first mortgage or your tenth, you need to understand what you’re getting yourself into because:
a. it’s probably the highest value contract we’ll ever have besides the contract to actually purchase the property
b. it’s probably the contract with the longest time period that you’ll ever sign (other than your marriage certificate)
So what do you need to know?
Firstly the interest rate – but if it’s a variable rate this will change depending on the market conditions. If it’s fixed, it won’t change, but you need to know the period that it’s fixed for and then what happens after that.
If it is principal and interest or interest only. Principal and interest (or P&I) is most common for home loans whilst interest only is very common for investment loans. “Principal” refers to the actual amount of money you borrow, so if you have a P&I loan, you will be paying off the debt as well as the interest that is accumulating. When you pay the interest only, your repayments will be lower because you’re not paying anything to repay the debt. This often suits investors as it keeps their costs down and they capitalise on the capital growth once they sell.
Then there are lots of other things like offset accounts, redraw facilities, the ability to make extra repayments (or not), repayment holidays and schedules, portability, and on it goes.
The thing is that these extra features often come at a cost – so if you’re not going to use them, don’t have them!
If and when you’re shopping for a mortgage – whether it’s for a home loan, investment loan, construction loan or refinancing your existing loan, my advice will always be to make sure you know what you’re getting into. Ask the questions. If you’re not getting clear answers, find another broker or lender who will make sure you understand what you’re signing on for.
What do you wish you’d known when you were getting a home loan?
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