Home Mortgages How To Choose The Right Home Loan For You

How To Choose The Right Home Loan For You

written by Shelley Marsh 17/10/2013
how to choose the right home loan for you

Yesterday, I went to my first ever blogger event for the launch of Macquarie Bank’s new “Flyer Home Loan”.  It is a home loan where you can earn Qantas Frequent Flyer Points directly through your mortgage.  It is a sign of the times that these types of products are starting to appear.  Competition in the mortgage market is starting to increase and the players are starting to think of innovative ways to get new customers, so you can expect to see more of these types of home loans in the future.

However, as you all know, I am a big fan of the KISS principle (Keep It Simple, Stupid) and especially so when it comes to mortgages.  I believe you should get the cheapest loan you can, with the right features (free extra repayments and withdrawals or offset account or both) and pay that sucker off as fast as you can (click here for my tips).  However, I can see how under some circumstances a home loan with extra features such as frequent flyer points might work for some people.  So, the big question is how do you decide what is the right home loan for you?

Here is a check list of some of the things you should do:

  1. Read the full Terms and Conditions associated with the loan.  Actually don’t just read it, make sure you understand it too.  I know it is not the most entertaining thing you will ever read (I have read more than my fair share!) but it outlines all the ‘ins and outs’ of a product including what happens if your circumstances change and the details that might catch you out.  All these things are extremely important in deciding whether a product suits your individual needs and the fine print can be really important when things change.  So many people get themselves into trouble by not reading all the details of a financial product.  Make sure you do not make this mistake.  Besides, if you read a set of terms and conditions just before bedtime it will ensure that you are quickly sent off to sleep 🙂 (only kidding).
  2. Calculate, calculate, calculate.  Figure out what you stand to gain, in dollar terms, by taking up a more complicated home loan product.  For example, how much is a frequent flyer point worth to you?  (Check out The Australian Frequent Flyer for tips on how to do this).  Then look at how much extra the loan will cost you versus a standard home loan product.    For example, how much higher is the interest rate?  How much does that add to the cost of your loan over its life?  What are the fees involved and how do they differ to a standard product?  Does the benefit in dollar terms outweigh the additional cost?  There is no point in taking a more complicated product if the benefits do not outweigh the extra costs.
  3. Run different scenarios.  Life throws you curve balls.  In my life things are always changing and most of the time things don’t turn out as I thought.  Calculate different scenarios and check under which circumstances you will be ahead using a particular product compared to a standard loan product, and which circumstances you would be behind.  You need to make sure you are clear about when a complicated product works for you and when it doesn’t so you are not caught out when things change.
  4. Most importantly get proper individual financial advice from a professional financial advisor, accountant or mortgage broker to make sure the product is definitely the right product for you and your circumstances.  Taking out a home loan is a big financial decision.  At current interest rates, if you let a home loan run for the full 30 years, you will pay almost as much in interest as you borrowed in the first place!  So be sure.  If you are not sure about the advice you are receiving, don’t be afraid to check the advice with another financial professional.

With competition increasing in the mortgage market we are bound to see home loan products with additional features hitting the market.  You must make sure that whichever home loan you decide on, is the best product for your own individual financial circumstances.  It is a big decision, don’t take it lightly.  Make sure you get good advice and do your homework.

If you would like to find out more about the “Flyer Home Loan” click here.

* I was not paid to write this post (not unless you count the muffin and the cup of tea) and this is not an endorsement in any way of the Macquarie Flyer Home Loan.  All views outlined are my own.

If you liked this post you might like:

How To Pay Off Your Mortgage Faster

Should I Fix My Mortgage Rate?

How To Use An Offset Account To Pay Off Your Mortgage Faster

5 Financial Tips You Need To Know Now You’re A Parent

Disclaimer:

The information contained in this post is general in nature and does not constitute financial advice.  Please see your financial advisor for advice specific to your individual circumstances.

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11 comments

Renee at Mummy, Wife, Me 18/10/2013 at 7:48 am

Shelley, with my comments in the past, I think I’ve made it clear that I have pretty much no clue when it comes to managing my home loan, super and finance. So … hopefully this next question won’t be a dumb one. You’ve mentioned KISS above which I love the idea of, would you consider a line of credit on your own loan keeping it simple? Hubby mentioned it last night and it sounds kinda good. I just don’t want anything that would be tricky to handle. If you ever want to write a post on it, I’d be interested 🙂 Thanks again for your helpful posts.

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Shelley Marsh 18/10/2013 at 10:09 pm

Hi Renee, lines of credit can make things a bit more complicated, but not terribly so. Like most financial products, used wisely they can be a good thing but whether it is right for you is a very individual decision. We actually have one associated with our home loan. How about I write you a post that explains how it works, how I use mine and the pros and cons of a line of credit. I will try to get to it this week. Thanks for the question 🙂

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Seana - Sydney, Kids, Food + Travel 18/10/2013 at 10:12 am

Good run down …. I have to admit I have never ever yet read all terms and conditions…. one day…. but you are so on the money about paying off that loan ASAP. I hope I can teach the kids never to get into unnecessary loans, credit cars etc etc and to get a home loan early not late and get going with it.

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Shelley Marsh 18/10/2013 at 10:12 pm

Hi Seana, yes lots of people think it is not possible to pay off a mortgage but it most definitely can be done. Thanks for stopping by.

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Leanne Winter 18/10/2013 at 1:42 pm

Seriously? Frequent flyer points on mortgages? What next one wonders (how many points for tattooing QANTAS on my forehead?)

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Shelley Marsh 18/10/2013 at 10:15 pm

Hi Leanne, LOL! Yes apparently you can get them for paying your electricity bill with certain power companies in Victoria, selling your house, insurance, the list goes on and on! I am sure they would give you a fair few for a tattoo, besides it would make a great blog post! 🙂

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Grace 18/10/2013 at 3:27 pm

Our mortgage is very straight forward. We paid off a whole stack of it when we were both working and had no kids (also put down almost 50% of a deposit) and we look back and think how well that’s worked for us. Especially now as I’m not working full-time.

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Shelley Marsh 18/10/2013 at 10:19 pm

Hi Grace, awesome! That is such a great strategy as it now gives you some freedom to spend time with the twinlets. Well done!

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Renee at Mummy, Wife, Me 18/10/2013 at 10:33 pm

Sounds fabulous, Shelley. Thank you so much!

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Maxabella 22/10/2013 at 10:12 am

This is definitely an area I leave up to the hubster. Oh, how the mortgage bores me silly. Only you could write an article about mortgages that I have read all the way though, Shelley. I bookmarked it for Bart – so thta’s a start, right!?! x

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Shelley Marsh 22/10/2013 at 9:38 pm

Absolutely Bron! Absolutely! 🙂

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