With so many home loans to choose from, finding the perfect fit for your particular needs takes research and patience. Regardless of how complicated your investment circumstances are, don’t immediately opt for the loan with all the bells and whistles. Sometimes the no-frills path is the best option – and it may save you money in the long run.
Fees versus features
When choosing a loan, borrowers often face a trade-off between features and interest rate. Generally, the more basic the loan the lower interest rate and the fees. Likewise, a feature-packed loan generally has a higher interest rate but may allow you to draw against repayments or offset savings against the mortgage.
When shopping for the best interest rate, borrowers can make the mistake of comparing loans with different features. This is like comparing apples’with oranges. To find the loan that will save you money, all costs and features need to be compared.
Getting back to basics
Whilst some people need the flexibility of added features, many are prepared to sacrifice these in order to pay off their mortgage faster. In this case, a no-frills loan is the best option.
But be careful because such loans may not allow you to make additional or early repayments. Some no-frills loans impose an early repayment fee that could offset the interest saved by paying off your loan early. In other words, the low interest rate offered by a no-frills loan won’t save you much if you need added features and flexibility. You could end up paying fees for late repayments and withdrawals if these are not offered as part of your loan. So some loan features like fortnightly repayments and offset can actually save you money in the long run.
Which loan is right for you?
Most of us need some flexibility, so be clear about your needs. eChoice will compare a variety of loan types, weighing up the features and costs according to your individual needs.
