Finding the best mortgage rates available is subjective. It is like answering “how long is a piece of string”. It all depends on what you want to do and what your goals are. Here are three core questions you must ask yourself first.
1. How long am I going to keep the home or loan?
If you plan to sell your home in the next 12 months (and most likely repay the loan) then I certainly would not be fixing my home loan mortgage rate for more than 12 months. I would be considering a 6 month fixed rate or 12 month at the most.
FYI, if you repay your home loan while you are still on a fixed rate loan, you will most likely pay interest penalties to the lender, so in most cases making sure you repay the loan while your loan is not on a fixed rate.
This can get a little more complex because there are options with some lenders. I did help some of my clients the other day who were on a fixed rate, they sold their home and managed to buy another home at the same time. In this case, the fixed rate home loan was transferred from one property to the other without repaying the loan and therefore no penalties. This is a rare occurrence but can happen if you you get your timing right (or within a week or two).
If you plan to stay in your home for 5 years and are on a tight budget, then a 5 year fixed rate may suit you. This way you know what you can budget for with no interest rate increases or surprises.
Whatever your choice, if you’re looking for the best mortgage rates available, make sure that if you choose a fixed rate, that the fixed rate term is in line with your plans and intentions.
2. Am I going to pay more than the minimum?
Is your plan to quit your debt or repay as much as you can on the loan? If you have a good cashflow and want to pay more than the bank minimum required payment, then you may want to consider splitting your loan with some on a floating rate and some on a fixed rate.
If you are considering this option then question 1 still applies. If you do want to split your loan, there is no need to put half of your loan on a floating rate and half on fixed. What you need to do is to carefully consider how much more you could repay on your loan over a certain period and put that amount on floating and the rest on a fixed rate.
This way, you get flexibility with paying more on your floating rate without penalties, and the certainty of a fixed rate so if mortgage rates increase your fixed rate portion of your loan will not.
3. Do I need an interest only mortgage rate?
Unless you are a property investor then I see no real advantage of having an interest only loan. Property investors can claim interests costs on loans for investment properties so if you are not buying as an investment property then you should really consider paying Principal and Interest.
- Principal and Interest loans are where your loan repayment to the lender have two parts to it. One part is the interest you are charged for the loan amount and the other part is the principal which is a portion of the actual amount you borrowed.
- Interest Only loans are where you pay the lender the interest on your loan and there is no repayment towards the actual amount you have borrowed (the principal).
Interest only loans usually have a maximum of 5 years but can be as short as 6 months (unless you have set up a line of credit, but I will save that for a another blog). If you are not a property investor you are still able to have an interest only loan, but the only real benefit would be that your mortgage repayment will be slightly lesser than the principal and interest payment.
Finding the best mortgage rates available
Whatever you’re looking for, the best mortgage rates available depend on what your goals are, and only matter when you take control and align them with your goals and not the lenders preference.
Make sure you do your homework and don’t be told by a lender that “our 3 year fixed rate is the cheapest” and get put that by default. These days we can become so fixated on fixed rate (excuse the pun) that we base our decision on rate instead of what our financial goals are. You’re in control and if you do not get asked what you plans and intentions are when structuring your home loan, then the best mortgage rates available will not help you achieve your goals and maybe you should seek advice or a home loan, elsewhere.
After all, it is your goal to get out of debt (isn’t it?), and it is the lender’s job to lend and create debt, and your goals and theirs seem so opposing, but yet you need each other, so get educated then you will know what the best mortgage rates available are….for you.