One of the best ways to save more money over the course of your loan is to know where to find the best value home loans, whether you’re refinancing an existing mortgage or purchasing a new property.
However, how does that appear? That would depend on your situation, your needs financially, and the terms of the loan. An individual who has excellent credit, for instance, is probably going to get a lower interest rate than someone who has bad credit.
The option to make free additional repayments is another feature of a home loan that can lower the cost of your loan. By assisting you in paying off your loan more quickly, this useful feature can reduce the total amount of interest you pay.
Comparably, you can adjust the frequency of your loan repayments to fit your pay schedule and budget by choosing a loan with flexible repayment options. Selecting a shorter repayment period could also be beneficial in order to lower the total interest amount.
What comprises a low-cost mortgage
What then do low-cost house loans look like? A low interest rate is the first feature of a cheap home loan that you will notice. If you borrow money from the bank, you will pay less overall because of low interest rates.
Low or nonexistent fees are another thing to watch out for when considering inexpensive house loans. Even though certain fees might not seem like much at first, they can add up over time to cause a sizable sum of money to leave your savings account and go to the bank.
The length of the loan can also affect how affordable a house loan turns out to be. A loan with a shorter term will require larger monthly payments, but the interest rate will remain the same. Although five years may not seem like a long time, the amount of interest paid on loans can quickly mount up. Most loans have terms of 25 to 30 years.
How to locate the most affordable mortgages
Determining which home loan has the best features and interest rate can be challenging. A quality low-cost home loan will typically have features that allow borrowers to lower their monthly repayments or interest rates in addition to a competitive interest rate.
Offset accounts are one feature that can lower the cost of your home loans. You can lower the amount of interest payable on an offset account by keeping a lump sum of cash in the account.
An additional benefit that can lower the cost of your home loan is the ability to make free additional repayments. With these, any additional money you manage to save can help you pay off the loan more quickly and also lower the amount you have to repay each month. In the long run, you can save a significant amount of money by paying off the loan sooner and making smaller payments, which will lower your interest costs.
Who can apply for low-cost home loans?
When it comes to affordable home loans, there are two types of home buyers: investors and owner-occupiers. The primary distinction between these two types of borrowers is the intended use of the property.
Those who take out a home loan to purchase a property that they intend to occupy are known as owner-occupiers. A loan-to-value ratio (LVR) of 80% is typically necessary for owner-occupiers, meaning that a $500,000 home will typically require a $400,000 loan and a $100,000 deposit.
Those who take out house loans in order to rent out their properties (or use them as something akin to an Airbnb) are known as investors. Banks tend to view home loans focused on investors as slightly riskier than those focused on owners, so they will typically have higher interest rates.
Which types of low-cost home loans are available?
Variable rate and fixed rate home loans are the two primary categories of low-cost mortgages. Split home loans are another option; in these loans, half of the amount is fixed and the other half is variable.
With a variable rate home loan, the interest rate could change at any time, as announced by the bank. Variable rate mortgages are typically the most widely held type of mortgage in Australia.
Home loans with fixed rates have an interest rate that is predetermined for a specific amount of time. Generally speaking, their interest rates will be higher than those of a home loan with a variable rate.