When you’re shopping around for the best home loan, affordability is certainly a factor – if not the most important one. You definitely want to make sure you can meet those mortgage repayments, but is price the only factor you should consider when selecting a home loan? And is the cheapest home loan necessarily the best one?
Author and financial journalist Noel Whittaker recently published an article in The Sydney Morning Herald (SMH) on why cheaper home loans are not necessarily good value. Let’s take a look at just how important other factors – such as flexibility – are to your final decision.
Is a cheap home loan really cheaper?
On paper, a particular home loan may appear less expensive. In general, the interest rate on a ‘no-frills’ home loan will be lower than one offering more features, which is of course a big draw card. However, as Whittaker pointed out in his SMH column, no-frills loans may appear straightforward and suited to your current situation, but are not flexible should your situation change.
You might feel settled at this point in time, but you could end up having kids (or more kids!) and needing to upsize to a bigger home. Perhaps you’ll incur some unexpected expenses down the track and will need to reduce your payments for a while to get by. A home loan that doesn’t give you that option won’t be flexible enough to adjust to the changes in your situation. What started out as a ‘cheap’ loan in financial terms could turn into something that’s costly for your family’s lifestyle and wellbeing.
What does a flexible home loan offer?
You may decide that a simple, no-frills home loan is the suitable option for you, and we recommend that you discuss this with a mortgage broker to make sure that it is indeed the right alternative. However, flexibility can be very important, particularly if you think your life situation may change in coming years (and even if you don’t, things do happen unexpectedly from time to time!)
For example, a no-frills home loan may not have a redraw facility. This is a special condition that allows you to pay more off your mortgage when you are able to, in order to reduce your interest. You’ll then have access to this money later on.
A no-frills home loan may not give you the option of having an offset account. This is a transaction account that that is linked to your mortgage account. Because interest is only charged on the net balance (that is, your mortgage balance minus the balance of your offset account), it reduces your interest payable and can therefore be a better choice than a standard savings account.
How do I know what flexible features I need?
If this is your first home loan, you may not know exactly what features you require. That’s why it’s vital that you talk to a professional who can help you understand the different inclusions that are offered and which ones would most benefit you.
There are a lot of extra features offered by home loan providers that you won’t need, and others that could make life a lot easier for you down the track. So come and chat to a Smartline mortgage adviser today and we’ll help you get your head around it.
You can contact a Smartline Mortgage Adviser on 13 14 97 for mortgage advice. Or complete our call request form and we’ll call you!