Do you love a bargain? It can feel like such a victory when you find that special deal on a new TV, or when you save a bundle by doing your Christmas shopping during a toy sale.
Unfortunately, this sort of approach to looking for a mortgage can easily land you in hot water. Whilst it always pays to look around for a good deal on a home loan – there’s also an old saying: “If it sounds too good to be true, it probably is”.
There are a few fatal traps when it comes to choosing the right loan for you. Unfortunately the excitement of buying your first home can be all too distracting, and it’s easy to put your foot in it by failing to research your loan options.
Irresistible Offers
The majority of lenders are very responsible and cautious, and only give out loans to people likely to make their repayments.
These lenders will offer the best deals their desired customer – usually someone who earns a good income, has a clean credit history report, and has a decent deposit to contribute.
If you know that your circumstances don’t make you particularly appealing to a lender, but you’re being offered a crazy deal – there might be something amiss.
Take some time to read the fine print and make sure that the loan contract doesn’t contain any nasty surprises. Remember – there’s no such thing as a free lunch!
Fixed rates
You might be tempted to lock in a low interest rate for a couple of years so that you can have the peace of mind that comes with knowing your repayments.
The danger here, though, is that you might be missing out on features that you need, or being charged additional fees. Make sure that you research all aspects of the loan, rather than just focussing on the interest rate.
Fees and Charges
Loan contracts can be very detailed – packed full of confusing words and legal disclaimers. But one section that you should study with a magnifying glass is the schedule of fees and charges.
Do you know whether you can make changes to your repayments? How much will it cost if you default on a repayment? What is the fee associated with ordering a statement ahead of time? And importantly – what establishment fees will you have to pay at settlement?
If you don’t know this amount, you might not be able to proceed with your purchase and you could lose your deposit.
Flexibility and Features
It’s important to consider what features you need in a loan – do you want to be able to make extra repayments when times are good?
Would you like to be able to take that money back again if something doesn’t go according to plan?
What about if you want to change your repayment frequency? The features of your loan are just as important as the interest rate – and not paying attention could mean that you end up paying a lot more in the long term.