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Loan Fees, Rates And Features to Consider!

By admin ⋅ March 13, 2008 ⋅  Email this post ⋅  Print this post ⋅ Post a comment

For the vast majority of us, home ownership is just not possible without the help of a financial institution, and boy do they make us pay for their help!! Let’s look at the facts…The longer you have a home loan, the more it costs you in interest payments and fees over the life of that loan!! And, the higher the daily balance, the more interest you pay! So, now that we know the above, how do we find a product that will help get rid of our loans the fastest way possible and thus end up costing us the least?? (not including loans purely for investment)

Let’s look at the Interest Rate

Interst Rates are just one thing to look out for!

Interest Rates are the number one consideration when looking at for a Home Loan, but if you look at the long term it is the entry and exit fees, and flexibility which really matter the most! For example what if you select a product on a relatively low interest rate but it has high ongoing costs or high ERF’s (Early Repayment Fees)? If these costs outweigh what you’ll save on the lower interest rate then obviously
this product is costing you more than you’re saving!!
A discounted rate or Honeymoon rate is a good example of the above where the first year is at a low interest rate but this increases over subsequent years, and the exit costs are usually high which means unless you are willing to refinance and pay a large Early Repayment Fee then you are trapped!

A Closer Look at Fees

Fees can also be a little misleading, by this I mean application fees. Compare for example a loan with no application fee and a loan with a $695 application fee, which one sounds more appealing??? Right, the one with no fee!! But trust me, Institutions will make this fee up somewhere along the line and will often end up costing you more!!

Loan Features are Very Important!

Getting back to the statement of how you can get rid of your loan the fastest possible way, you’ll need to consider the features of a loan! For example if you choose a ‘basic variable’ or a fixed rate, you are usually unable to make additional payments, therefore interest is being charged on a higher balance as you cannot make additional repayments, however if you have a more flexible product you may be able to make extra repayments or have an offset facility therefore reducing your interest costs. The interest rate may be a little higher but the overall savings outweigh this.

Comparison Rates show the True Cost of a Loan!!

You also need to check the comparison rate when it comes to the overall cost of a loan over the loan term. Institutions now must list the real cost of every product they offer which includes all ongoing & upfront fees and interest costs, in other words the comparison rate the TRUE cost of a loan!

You need to choose the loan must suitable for YOU!! Usually the best fit is one that you can just forget about but have piece of mind knowing you are making additional repayments on, but doesn’t stretch your budget too far!!