Whether buying new or renovating your current home, choosing the right home loan to meet your needs is almost as fraught with peril as choosing a new home itself! With so many options on the market it can be difficult to decipher what’s on offer and weigh one against the other.
For example, deciding on a fixed interest rate vs variable can save you thousands of dollars in the long run, or when is the best time to refinance a loan over time? Often the proof is in the pudding, so it pays to seek the advice of professionals to ensure opportunities are not overlooked in the process. We spoke to CEO of global real estate network Century 21 Charles Tarbey, to discover how to separate the wheat from the chaff.
1. Enlist the help of a professional
“Choosing the right loan is easier today than it has been due to choice,” says Charles. “With that in mind a broker, representing a number of institutions, will give you that unbiased choice.”
“In today’s current market it if often best to take a loan that has part fixed component – to protect yourself against interest rate rises, and a principal and interest component so that debt reduction can occur,” Charles advises.
“When refinancing you must ensure that should you decide to change your lender in the future, you are not bound by high exit penalty fees.”Charles Tarbey
2. Consider refinancing
“Quite often loans, once settled in, generally only have an upward movement in interest rates,” says Charles. The benefit of refinancing a loan is that it keeps you on top of the very different offers available to you - especially from competitive smaller lenders. “Spreading a loan over a longer period, by refinancing your existing loan, can reduce repayments and provide you with a better lifestyle,” Charles advises. “This should not be done without a great deal of consideration relating to your current financial position.”
3. Look before you leap
Review your current agreement and make some key considerations before you make a change. Not all lenders are the same and it’s important to do your research before signing a new financial agreement with any institution. “As with getting into a new loan, getting out can be a lot harder,” Charles warns. “When refinancing you must ensure that should you decide to change your lender in the future, you are not bound by high exit penalty fees.”
"Loans are not forthcoming without the ability to repay being strongly demonstrated."Charles Tarbey
4. How has the Royal Commission changed the property market?
The effect on the property market has been filtering through slowly, with the clamp-down on lending certainly being felt by homeowners looking to make a change. The results of stalls in the lending process have the potential to throw timings out for both buyers and renovators and opportunities are being missed. “General home buyers have been greatly impacted by the Royal Commission,” says Charles. “As prices fall many have not been able to take advantage as banks look even closer than they ever did before into the lifestyles of the potential borrower.”
“Banks were reviewing their lending policies before the royal commission however there is no doubt that the royal commission has impacted the property market,” Charles continues.
“No longer is equity king - for even with a high level of equity, loans are not forthcoming without the ability to repay being strongly demonstrated. This has certainly clipped the wings of the entrepreneur.”
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