How to Choose the Right Home Loan

Have you ever stopped to consider how much your new home really costs? Although it might be faster, looking for instant cash loans they might not be the best choice. After all, what you pay for your loan over a 30 year term is what you end up paying for your house.

Consider this, a house which is financed with a home loan of $500,000 over 30 years at 7.5% will cost a total of $1,250,768.81 in repayments. Yet the same house financed with a loan which costs 7% over the same term will cost a total of $1,190,599.33. So you can see that a loan which is just .5% cheaper could end up saving you over $60,000 during the life of the loan.

That’s why it’s important to take at least as much time choosing your home loan as you do in choosing the house. With the plethora of home loans available in the market today this is not always an easy task unless you have a plan of attack. Here are some things you can do to make choosing your home loan a lot easier.

* Think about the changes that might occur over the next 5 years. For example, are you planning to start a family, finish your education and start a new career or are you simply planning to stay in your house for a short time before upgrading? If so, you don’t want to be locked into a loan which has early exit fees or gives you no flexibility in terms of repayments. You might want to make extra repayments in the early stages so you have plenty in reserve for when your income might change when baby comes along.
* Are you planning to stay in the house for long-term and start a family in the next two years? If this is the case you might consider opting for a fixed rate home loan so you can be certain that your repayments don’t change when your income does. This means that you can plan ahead to ensure that you are comfortable with repayments on a single income rather than two.

These are just two examples of the need to plan ahead, but there are other considerations which can help you make the best choice in a home loan.

For example, if you want to pay your home loan off sooner, you need to have the flexibility of making extra repayments whenever you wish. This ensures that you will pay the loan off quicker than normal, in fact by paying half the normal monthly repayment every fortnight you can cut 6 years of your loan without thinking about it!

Then comes the question of fees. Don’t underestimate the impact of a monthly account keeping fee charged by many banks. For example, say you have a $400,000 home loan over 30 years at an interest rate of 7% with a monthly account keeping fee of $10. After you factor in the account keeping fee the effective interest rate is actually 7.04%. Although this might seem a small amount, over the life of the loan it means you pay an extra $3600.

So, don’t necessarily go for the fast loans option. Take some time to examine your needs and do some comparisons before you decide.