Everyone knows to save up for a home loan, but what about saving on the home loan itself? Is it possible to get a “cheap” loan? While loans aren’t a regular product like a cup of a coffee or car, different terms and features can make a loan more expensive or cheaper over time.
Learning about these aspects of a loan and choosing the right features can save you real money.
The length of time a loan will be repaid over, known as the term of the loan, will affect the amount needed to be paid each month. A longer term loan will be cheaper each month, but may actually cost more over the life of the loan, as a greater amount is paid in interest. A shorter term loan is the opposite and will incur the least amount of interest, but have higher monthly payments.
The ideal loan is somewhere in between and depends on your circumstances. For those who can afford it, a shorter term loan will be better interest-wise, and will be paid off faster, meaning equity in the property is built up quicker as well. Longer term loans don’t have to be more “expensive” though.
For those who have the discipline to make extra repayments when times are good, a longer term 30 year loan can be a good deal. If a few years into the loan, you find your circumstances change and you are able to pay the loan off earlier than you thought, most home loans these days can be refinanced fairly easily, shortening the term even further.
Besides the term of the loan, a loan’s features can also greatly affect how much you end up paying. Loan features can save you money or cost you loads if you are not careful about the terms. In general, loan features cost more money, if not upfront, than in a higher rate, so it’s wise to weigh the benefits of the options carefully before taking it on.
The absolute cheapest loans you can get are bare bones, with minimal or no features at all. These loans will have the lowest rates, but may not be very flexible. You may not be able to pay off the loan quicker even if you end up having the finances to do it. For those looking to pinch every penny, and especially those on a fixed income, they can be a good idea.
For a cost effective, minimally featured loan, a redraw facility with extra repayments is a good choice. Extra repayments let you put additional funds into the loan when you can, saving you heaps in interest over the term of the loan. The redraw facility means when an emergency pops up and you suddenly need funds, you can apply for a redraw and withdraw the money you’ve contributed. This type of loan gives you an extremely low rate with the flexibility of a rainy day fund.
There are loads of other loan features you can get, but these two options are some of the best ways to save on your home loan. If you have any questions about mortgages or your first property, speak with a representative at FHOC today.