Home loans is a very broad term that usually covers a good number of things including; first time home buyers, refinance mortgage, home equity loans, cash-out refinancing etc. so it can be overwhelming when you are about to purchase your first property.
Choosing the home loan that is best for your situation is important and this can be a very tough decision to make. Although you want to make sure you're gettting the best interest rate that's available, there are also other factors to consider as well.
1. Variable Rate Home Loans
One of the decisions you'll have to make is to decide if you want a variable or fixed rate home loan. Variable rate home loans are very popular because they give you the lowest rate at the time and the initial interst rate is always lower than the interest rate of a fixed rate mortgage.
Just keep in mind that the interest rate of home loans is dependant on the prime rate, so everytime the prime rate changes so does your payment.
While variable rate home loans are great to have when interest rates are falling, the drawback with these kind of loans are that interest rates can sky rocket and leave you with mortgage payments that are difficult to keep up with.
And if property values decreases in combination with interest rates that are rising you could end up in trouble with a mortgage payment that's difficult to pay and virtually impossible to refinance out of.
2. Fixed Rate Home Loans
The advantage of fixed rate home loans is that the interest rate on your loan will not change, even if interest rates go up or down.
However, the biggest drawback of fixed rate home loans is that you run the risk of not taking advantage of lower monthly payments when interest rates fall. The difference in the amount that you pay each month can be huge if you have a variable rate mortgage and the interest rate is lowered.
Which loan should you choose?
This will depend of several factors like the general state of the economy, your own financial situation and the risk you're prepared to take.
3. Home Loans - Do Not Overextend Yourself
You should make sure that you are comfortable with the payments when qualifying for a home loan. So, if you're currently renting and would like to keep your payments the same as what you're currently paying in rent, then only apply for a home loan that will keep you at that level, even if you can qualify for more.
4. Home Loans Insurance - Don't Get Rip-Off
The bank will request that you have insurance on your property. However, they will also try to sell you their own in-house insurance to boost their profits on your home loan. Often, they don't event tell you about it, until the day you see it on your documents when you go to sign at the lawyers.
But, this one place where you can save some money on the total cost of your home loan. You can easily find much better deals elsewhere, so refuse to sign any documents that include insurance which you are not happy with.
As you can see, there's a lot that can be accomplished through smart home loans financing. Of course, most bankers are not going to break their neck telling you how you can go about to save money on your home loan - chances are that they will be able to force-fit you into a higher price home loan, and they know it!
I understand this is a lot for you to take in so I am happy to spend some time with you and answer any questions you have about choosing home loans . You are welcome to contact my office at 086 110 6204 or send me a personal email at: info@gpfmortgage.co.za
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