Top Home Loan Tips for 2021 | The Dos and Don'ts of Mortgages

Top Home Loan Tips for 2021

For those with sights on the property market in 2021, Australia’s low interest rates are making home loans more attractive and affordable.

To make the most of low interest rates whilst still managing rising property prices, we’ve put together our top home loan tips for 2021. From understanding loan rates to paying your mortgage off faster, our advice will help ensure you’re in control of your loan – not the other way around.

Make Sure You Get the Best Loan Rate for You

The best type of loan varies from home buyer to home buyer. However, understanding the different options available to you will help you make the best decision.

Variable

This is the most common kind of loan. It means the interest rate you pay on your home loan varies over time. Your bank will increase and decrease the rate it in accordance with market conditions and the cash rate set by the Reserve Bank of Australia.

Fixed

Alternatively, you can choose to have a fixed interest rate. This means the interest rate you pay on your home loan won’t change for a certain period of time. This period of time is typically between one and five years after which your interest rate will generally change to the variable rate at the time.

A fixed rate provides consistency and certainty in the cost of your loan repayments.

Split Rate

A split rate means a proportion of your interest rate is variable whilst the rest is fixed. This ensures some certainty without losing the possible benefits of a variable rate.

Keep Your Credit Score in Great Shape

Before applying for a home loan, make sure you are not behind on any credit payments. Check your credit score regularly to stay aware of negative features on your report. Staying aware means you can rectify problems quickly and repair your score.

Avoid opening new credit inquiries or taking on new debt in the lead up to and during your home loan application.

Your credit score is important, as it’s a crucial factor in whether you are eligible for a top interest rate – or whether you will be granted a mortgage at all.

Understand Your Loan Timeline

Making a plan for how you will pay off your mortgage is imperative. Will you make weekly, fortnightly or monthly repayments? Even this single decision will impact how quickly your loan is repaid.

Counterintuitively, paying $2000 a month towards your home loan will not pay off your mortgage as quickly as paying $1000 a fortnight. This small shift to the latter schedule means you will end up paying more per year towards your loan.

Mapping out the shortest yet manageable timeframe will help reduce the interest you pay on your home loan across its lifetime.

Get an Offset Account

An offset account is a feature worth considering that comes with some home loans. How does an offset account work? An offset account is a savings account that is linked to your home loan. The amount of money in this account will offset the ‘balance’ of your loan that you are charged interest on.

For example, imagine you have a $250,000 mortgage but $50,000 sitting in your offset account. In this scenario, you will only be charged interest on a $200,000 remaining balance.

Save For A Larger Deposit

While you can take out a home loan with as little as a 5% deposit, this approach generally ends up being far more costly. The smaller the deposit, the more you need to borrow and the greater the interest you pay.

On the other hand, a larger deposit can help you sidestep extra costs as well as qualifying you for more competitive interest rates. With a deposit of 20%, or an 80% Loan to Value Ratio, you are exempt from Lenders Mortgage Insurance, for example.

The experts at Compare and Connect can help you choose between various loans from an array of lenders to ensure you get the best deal for your circumstances. Enlist our help at no extra cost to you today