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:
- 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).
- 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.
- 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.
- 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.
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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.