How to find the right home loan for your needs

Buying a new home or investment property is an exciting time, and there are many important things to consider. Finding the right home loan is one of them.

Whether you’re self-employed and buying your first home, need more room for your growing family, or are looking for a retirement nest egg, there are all sorts of home loans to cater to your specific needs. But how do you determine what type is best for you when there are so many different options?

Here’s how different home loans may suit different situations.

If you’re self-employed

When you apply for a home loan, many lenders will ask to see proof of steady employment, such as tax returns or similar financial documents.

While this option may allow you to secure a home loan without the traditional documentation, it can potentially carry extra costs, so it’s important to review the criteria, features and rates of each offer before making your choice.

If you’re renovating

You may be looking for extra funds for a new kitchen or bathroom, or need to make more space to accommodate a growing family. If you’ve built up sufficient equity in your home, you may be eligible for a home equity loan.

This could be a good option if you need to borrow a significant amount of money, as home equity loans typically offer lower interest rates than credit cards or personal loans.

However, it’s important to note that if you default on a home equity loan, the lender will require you to reconsider your financial situation.

If you’re moving

Whether you’re upgrading or downsizing, buying a new home presents an ideal opportunity to consider switching home loan lenders.

Refinancing allows you to switch your current home loan with a new loan, which means you could shop around for a lower rate and better features. Use our Refinance Calculator to work out how much you could save, or compare your rate against other offers now.

Alternatively, you may be able to take up a portable loan, which essentially means you’ll keep your current loan product but switch the property it covers. Loan portability can save you the hassle of switching things like ATM cards if you’re happy with your current terms. Bear in mind that some lenders may charge a portability fee for this service and you’ll need to consider a number of other factors to determine if it’s a suitable option for your circumstances.

If you’re investing in another property

As well as being a good option for renovators, a home equity loan could suit people looking for a second property, provided they have built up enough equity in their current home.

Generally, you can apply for a home equity loan if you have more than 20% of equity in your home.

There are several advantages to a home equity loan, including flexible features and a redraw facility so you can access extra cash if you need it.

If you want to grow your retirement fund

If you’re retired and own your own home but need some extra cash for a new car, holiday or unexpected expense, you may be eligible to use a reverse mortgage to borrow against the equity in your property.

Reverse mortgages require no monthly repayments during the loan term, but you or your family will be required to pay the total interest, fees and charges when your house is eventually sold.

Things to consider

When comparing home loans, it’s important to look beyond interest rates.

Some home loans offer additional features that may help you pay them off sooner, so make sure any home loan you’re considering suits your circumstances and budget.

Ask yourself:

· Will you want to make extra repayments?

· Do you want to have redraw facilities so you can access extra money you’ve paid back on the loan?

· Would you benefit from having your salary directly credited to your loan account?

· Could you save on interest by setting up an offset account?

· Are you eligible for a First Home Owner Grant?

The answers to these questions may help you determine how best to structure your home loan.

Which lender is right for you?

Once you’ve determined what sort of home loan will suit you best and the amount you can afford to pay each month, it’s time to decide where to go to borrow the money.

The choice will depend on various factors, including what you’re looking for in a home loan and how much time you have to shop around and compare offers.

While the big banks may seem like the most reliable option, remember that customer-owned banking institutions such as credit unions, building societies and community-focused banks are subject to the same corporate and prudential regulatory frameworks. It really comes down to personal preference and the most suitable offer.

A home loan is a long-term financial commitment that demands careful consideration, so take time to review all the offers, particularly the administration fees and whether there are any special features that may help you pay off your loan sooner.

Remember, it’s not all about the rate.

Start comparing home loans from Australia’s leading banks and credit unions now.

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