Which home loan will suit you?

While lenders are actively competing for the hearts, minds and purse strings of home buyers, the question you as a buyer should ask is: “Which product suits our budget?”

Deciding which loan suits you is an important financial decision. To help you get a clear picture of what each organisation has to offer buyers should list questions to ask.

Finds out what are the options, the interest rates and types of interest being charged: fixed, variable or capped.

If the rate is fixed or capped, find out for how long. A capped interest rate is similar to a fixed interest rate as it will not increase beyond a certain level for a set period. Unlike a fixed interest rate, a capped rate can fall.

You should also see if you can pay out the loan early and, if so, whether there is a penalty.

Also, ask whether interest is calculated monthly or daily. If it is calculated on your minimum daily balance, you will benefit from making weekly or fortnightly repayments.

Be sure to ask about establishment fees and other costs associated with taking out a loan. Remember that these costs vary widely between lenders.

Buyers leave some margin in their loans so that they can make increased repayments should interest rates increase.

Many lending institutions now offer redundancy insurance. This insurance is usually available at reasonable rates and will take care of your loan repayments for a set period should you be made redundant.

Find out what deposit will be required on the sort of home you want to buy. This can vary markedly between lending institutions. You should also know that if you have only a relatively small deposit for your new home, your lending institution might require you to take out a mortgage insurance policy.

Some organisations also offer mortgage offset accounts that automatically use any interest generated to pay off your home loan. Alternately, some lenders allow borrowers to redraw money already paid into the loan.

Prepared in conjunction with the Real Estate Institute of Queensland www.reiq.com.au