When you’re comparing home loans, it’s tempting to go straight for the one with the lowest interest rate. 

But, while the lowest interest rate may seem like the obvious choice, there are several other factors you ought to consider that can impact your loan in the long run.

Focusing solely on the headline rate could cost you more in the long run – not just in dollars, but also in missed opportunities, inflexible features or unexpected fees.

High fees

One of the primary reasons a cheap home loan isn’t always the best is the inclusion of fees and charges. This can include application fees, ongoing services fees, redraw fees and even early repayment penalties or break costs.

These costs can add up quickly, eating into any savings you may make from a lower interest rate.

For this reason, rather consider the mortgages’ comparison rates. This includes the interest rate as well as the other fees and charges associated with the loan. It provides a more accurate representation of the true cost of the mortgage.

Flexibility

Depending on your financial situation and long-term goals, these features can be very valuable, allowing you access to extra cash or reducing interest over the life of your loan.

An offset account, which links your savings to your mortgage, can reduce the amount of interest you pay. Even though a mortgage with an offset account may have a higher interest rate, the interest savings generated by offsetting a substantial amount of savings can be significant over the loan term.

Another valuable feature is a redraw facility, which also reduces the interest you get charged and allows you to access any extra repayments you’ve made. This can provide a financial safety net for unexpected expenses or access to funds for renovations or other projects. The ability to make additional repayments without penalties is also helpful for homeowners who want to pay off their mortgage faster. Some loans with lower rates may restrict extra repayments.

Loan term

Your loan term contributes to the overall cost. While a longer loan term can mean lower monthly repayments, you may end up paying much more interest over the life of the loan. 

On the other hand, a shorter loan term can mean higher monthly repayments but lower life-of-loan repayments, while also potentially giving you access to additional features that better suit your financial needs and goals.

Service

A low rate might save you money but if the lender offering it has a slow approvals process, poor customer service and limited access to support, this may make your homeownership journey very stressful.

What do you qualify for?

While a lender might advertise a low rate, that doesn’t mean every borrower will be eligible for it. Understanding what you qualify for will help you find a loan that suits your financial situation. 

Lenders will assess your income, expenses, debt obligations and credit score; they’ll also look at how much deposit you have saved or if you’re going to be taking out lender’s mortgage insurance.

That’s why it’s recommended to get pre-approval when applying for a mortgage so that you understand your options. 

Working with a mortgage broker can help you compare your options and find the right fit – not just the cheapest deal.

Ready to find a loan solution tailored to your needs and financial goals? Just Imagine Finance can help you. To discuss your options, contact us at catherine@justimaginefinance.com.au or on 0414 673 359.