There’s a plethora of mortgages offered by lenders which can make it increasingly difficult to choose the right one. The sheer competition and complexity can often overwhelm an individual. If you are a first time buyer, you will need the guidance to help you understand these complexities. This how-to guide provides the 4 C’s that will enable you to decide on the best mortgage for you.
However, if you feel as though you need further advice, seeking a mortgage broker would be your best option. They will do most of the work involving the comparison of different loans while taking your individual circumstances into account.
If you wish to further understand your rights in purchasing a mortgage: including any transactions that take place, LawPath provides the gateway to obtain a fixed-price quote from a Property Lawyer.
1. Consider your Needs
Depending on whether you are a first-home buyer or a second home buyer, obtaining your first mortgage will need to be easily manageable. Weighing up the pros and cons of your own individual circumstances will help you ascertain what features you would like your mortgage to contain. If you are starting a family, a healthy repayment holiday option can extend the life of your loan and allow you to spend time looking after your kids.
In order to evaluate your position before purchasing a mortgage, you should ask yourself three questions:
- What sort of property do I want?
- How much can I borrow?
- What additional benefits do I require?
Michael Tsoa-Lee , the director at Mates Rates Mortgages, states that ‘Structure is the first thing to get right before you choose a rate or lender…….it is important to ask yourself what your finance needs are.’
Once you have truthfully answered those questions, it is time to research your possible lenders.
2. Consider the Lenders
The best way to find the right lender is to begin researching and asking a few questions to multiple lenders before deciding on a loan. Often, the best way to find a lender is through word of mouth; in that way, you are hearing from someone who has already dealt with them and has recommended them.
You should look to discuss what type of loan you want to acquire. There a three main types of loans:
Basic Loans
These loans often with few features and a low interest rate. These loans are often not suited if you want to make extra repayments.
Standard Loans
These loans are far more flexible than basic loans and include many features. You also have the options of switching/splitting the loan into a :
- Fixed rate
- Variable rate
- Split rate (one part Fixed, one part Variable)
Mortgage packages
These are standard loans with an interest rate discount of up to 1.2% depending on your loan amount. They are also cheaper than many basic loans. However, they come with high package fees.
There are also niche trading loans that are available, such as:
Bridging Mortgage
This loan is useful if you are wishing to buy a new home before selling an existing home. There are two types of bridging loans: a single loan for both properties, or a separate loan for the property being purchased. These bridging loans require you to sell your existing home within the bridging period, and if not, you will have to accept a price lower than you expected in addition to a larger debt to repay.
Construction Mortgage
A self-explanatory loan that withdraws funds in stages as you receive bills from trades people and suppliers. In this, you will only pay interest on the funds you have utilised.
Renovation Mortgage
Similar to construction loans, however, these basic home improvements can usually be funded through your mortgage. However, both your mortgage and renovation loan can be utilised together.
Your questions should look to touch on the features and fees associated with the loan in addition to the lenders loan support structures. In this, you want to ask whether the lender has customer service consultants readily available to deal with any matters than may spontaneously arise.
You should also look to ask what fees on the loan are likely to be payable, and not the ones that are payable. It would also be useful to asks the costs of exiting a loan after three to five years if the loan is short term. Your best bet is to ask them to outline all the fees that come with the loan, such as discharge, break, valuation and legal fees.
Your aim is to find a comfortable, flexible lender that is able to deal with any problems that arise with your mortgage. Having ready to access decision makers will enable you deal with stress down the track when searching for the right lender.
3. Consider Vendor Finance
Besides traditional lenders — you should also look towards vendor finance depending on your circumstances. In this, the owner of a property may offer to provide finance to the purchaser(you). This often comes with a higher interest rate than your usual standard mortgage rate and you may also have to pay a premium to the vendor above above the purchase price of the property. Vendor finance includes:
Instalment Sales
This is a basic contract similar to a bank loan in which you make either principal or interest repayments over a long period of time to the seller. The seller is responsible for all rates, insurance and taxes. You are responsible for all repairs and maintenance, and you will also attain an equitable interest in the property. However, you cannot default on your repayments or risk having your contract terminated; you will lose your deposit and repayments.
Rent to Buy Schemes
This scheme usually includes a residential tenancy agreement and an option to purchase the property. The seller is responsible for rates, taxes, repairs and maintenance. You will also have an equitable interest in the property and the payments are fixed for the duration of the rental contract. Like instalment sales, if you miss any payments, your contract could be terminated.
After considering both traditional lenders and vendor finance, you can now confidentially look into the specific features and fees of your loan.
4. Consider the Features and Fees
The best way to compare the features and fees of different mortgage is to ask for key facts sheet from different lenders. Lenders are obliged to provide this information in order to make the loan transparent.
These will come with information regarding the amount to be paid back on the loan, repayment amounts, and any additional fees and charges, these include:
- Application Fees
- Valuation and Lenders Legal Fees
- Monthly or Annual Fees
- Break/Exit Costs
Lenders may also include Lenders Mortgages Insurance (LMI) which is just a condition where your lender may have to pay a one-off payment to protect them against the possibility of you failing to make your mortgage repayments. This will depend on the size and amount of your loan, your employment situation, and whether your property is for investment.
Other features on key facts sheet may include:
Extra Repayments
Some loans may limit that amount you can pay without getting charged a break fee.
Loan Portability
A feature which allows you to keep your loan when moving to a new property.
Offset Accounts
A feature which allows you to deposit money into an account and then receive interest in the form of a reduction in the interest due on your loan.
Redraw Facility
A feature which allows you to receive the money you have made into your extra payments you have made into the loan. The extra money you pay into the loan reduces your loan balance which reduces the interest you pay.
Line of Credit
A feature which allows for a credit limit to be set on the loan and you can only spend up to that credit limit. You will need to repay the loan by the specified date.
Repayment Holidays
A feature with allows you to take a ‘repayment holiday’ for a short period of time based on your individual circumstances e.g You just had a baby.
It will also give you a personalised comparison rate to help you compare the loan against others. Comparisons rates are a great way to establish the true cost of your loan. In this, a competitor with a higher advertised rate and a low comparison rate could be a cheaper option over the term of a loan. However, comparison rates can often be polished when the lender includes only a set amount of fees in the calculation.
The best way to perceive this information is to consider the whole package offered and not look at just one aspect of it. If the loan has a very low interest rate, there is a good chance that the fee structure is high. Generally, what you are looking for is a flexible loan package that can adjust if your individual circumstances change.
Trust Yourself to Choose what’s Right for You
After following the above steps, you can trust yourself that you have chosen the right mortgage. In this, you have analysed and adapted your wants and needs to suit the loan you are looking for. You have thus accounted for the possible ramifications that may incur on the loan should your individual life circumstances change.
After you have exchanged a contracts to purchase a house, it is essential that you understand what to do next.
