Choosing the right mortgage is not just important for your needs, but could make the difference of thousands of dollars in the long term. There are so many products from so many financial institutions, all with differing interest rates and a huge range of features and fees.

Below are things to consider-

The Purpose of the Loan
Most home owners who plan to buy one home only, but possibly may like to sell and go to another house, require just a basic no frills loan. Some people may like to go out and get a loan with features like an offset or line of credit. For most though you only really need to be able to get a loan with low or no fees. Fixed or Variable rates are usually a point of contention - each to their own. You may like the ability to pay off your loan faster, or the ability to redraw funds for a new car or boat. You may like to have an offset against your savings, saving interest while not tying up your money in extra repayments.

Investors will be a bit more flexible in regards to finding the right mortgage. Investors need a residential investment loan. They may like to have a fixed rate so they know what repayments are going to be. They need to have Interest Only loans to maximize cashflow. They may like to have all in one account, or splits where they have a few properties in one loan repayment. They like to have the ability to redraw for future deposits. They like to have portability in their loans to remain flexible in the market.

Loan Features
Now whilst these are endless, they are essential to your mortgage needs. Credit cards, splits and redraws are all useful and from time to time will be needed, but remember they come at a cost either in the way of fees, a higher rate or a bit of both. Make sure you only get what you use and find out what costs there are in using certain features.

Additional repayments
Making extra payments when you can will save you thousands and cut years off your loan.

Portability
If you move house, this feature will allow you to keep the same loan. This may incur a fee but will still be less than establishing a new loan.

Redraw:
Allows you to have access to any additional payments you have made above the normal scheduled repayments.

Credit facility
Rather than take out a separate loan for personal finances, such as renovations, a credit facility on your loan increases the credit limit on your existing loan. This is subject to approval and other lending criteria.

Repayment holiday:
By building up extra funds in your loan account you can take a break from making regular repayments for as long as there are extra funds in your account to cover them.

Mortgage Offset
Links your mortgage with your transaction account so that every dollar in your transaction account offsets the interest calculated on your mortgage.

Re-fix
Allows you to enter into another fixed loan rate at the end of your current fixed rate period.

Banks, Financial Institutions and Brokers
Most financial institutions will have an interest in loaning you money (provided you meet their criteria) but they do not all offer the same products at the same costs. It pays to do some research and find out what they are offering. While many will offer loan products that sound similar, compare costs such as interest rates, administration charges, loan application fees and other one-off or ongoing fees mentioned in the small print.

These may be incurred as penalties such as late repayments, exiting the mortgage, switching to (or exiting from) a fixed rate loan, moving the mortgage to a new property or basically changing any of the features as originally agreed. If one lender offers you a good deal, contact the other lenders you have been speaking with and ask them to meet or better the offer. After all you are making a business deal and it is their interest to try and win your custom. If you have an existing mortgage and want to change to another loan product, do not be afraid to negotiate your new mortgage and ask for certain fees to be waived - after all, the bank can only say no and you can then consider whether you would prefer to move to another lender.

Research
Using online services from banks and lenders is a great way to get hold of information about their loan products in order to measure and compare these products against your needs. Many of these websites also have mortgage calculators that will give you an idea of the amount you will be able to borrow given your current income and expenses. Do not forget they never ever include the real costs.

I know that Rate City cover almost everything you will need to find out before signing the first documents a broker or banker may suggest.

These can vary, so use them as a guide. There are also many mortgage companies who offer different mortgages from various lenders and claim to offer the best deal by giving you the mortgage to suit your needs with the lowest associated costs. Compare these products yourself against those others you are considering before deciding whether it really is the best deal. Ask the broker or bank manager to show you the comparison rates.

It is very important to look at the long-term costs of the loan before you decide which is going to suit your needs best. Choosing one type of loan over another could make the difference of several thousand dollars over the term of the loan. Although it is never possible to know which way interest rates will go in the future, even the decision to repay your loan in fortnightly installments rather than each month could mean a saving of 10% over the long term. Similarly, increasing your mortgage payments when circumstances allow (for example, following a job promotion) can reduce it by several years. It is therefore well worth conducting a little research on the topic, especially if you have never considered some of the ways possible of saving money on your mortgage.

A mortgage is a guarantee or pledge to repay the loan you take to buy real estate. The word mortgage comes from a French word ‘mort’ (death) and means ‘agreement until death’. Keep this in mind when reading the terms and conditions of the mortgage you are entering!

Don Christie

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