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The biggest expense most of us face is our mortgage home loan. It is important to compare home loans between different lenders. Mortgage brokers offer the facility to compare loans between diffent lenders. You can get a free quote from online mortgage brokers or lending institutions. When looking to buy a house it is useful to get a pre-approved mortgage loan. If you have a pre-approved mortgage loan there is a very good chance that you will be able to get a loan as all credit rating and income have been checked. This will also give you an indication of how much you can borrow.
When decideing which home loan to choose there are a number of things to consider. You need to look at the rate that is being offered obviously the lower the better. Is the rate fixed or variable. It is quite difficult to choose which is better because we cannot predict which will be better in the long run. A fixed rate is more suitable if the interest rates are expected to go up and a variable rate is better if interst rates are expected to go down. The reserve bank is responsible for controlling the interest rates and lenders will almost always change their rates when the reserve bank changes their interest rate. In a strong economy the interest rate will tend to go up. Some lender will allow you to lock in a rate for a small fee while the loan is being processed. This can save you a small amount if you know the rate will be going up. Typically a fee of 0.125 is charged to lock in the rate for 90 days, so if the rate goes up by 0.25 you could save 0.125 on the loan amount. When the 90 days has passed and you have not yet purchased your house you will loose the lock in fee.
It is also important to see what each home loan offers. An offset account is highly recommended as the interest is calculated on the difference between the loan amount and the balance in your offset account. You should then setup all income to go into this offset account. It is then a good idea put all purchases on your credit card which gives you interest free days and then pay your credit card off in full when due. This allows you to keep additional funds in your offset account. Withdraw facility allows you to withdraw funds from you home loan. This is useful in times of emergency. When you apply for a loan you could incure a loan application fee. This could be a fixed amount or a percentage of the loan amount.
Early termination fee is applicable if you pay off your loan early. You may want to do this if you wish to refinance so you will need to calculate whether you will same more on the new loan compared to the early termination fee. Are there any late Payment fees. If you are unable to make a monthly payment you could be charged a late paytment fee, usually 5% of the payment amount. Some lenders impose an Overpayment penalty. So for a particular moth you must pay the monthly loan repaymnet amount, plus you are allowed to pay an additional amount. Some lender put a limit on the additional amount that you are allowed to pay. If you exceed that you could be charged an overpayment penalty.
The interest rate is calculated on a daily basis and added back to you loan account on a monthly basis. Daily interest is calculated as loan amount x (interest rate / 100) / 365 (or 366 for a leap year)
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