First home buyers: four tips for choosing a home loan

In the current low interest rate climate, many first home buyers may be confused about the best option for their first home loan.

Choosing your home loan means striking a balance between your varying priorities. Are you after low fees? Or are you more interested in being able to capitalise on interest rate cuts? Maybe you’re happy to pay a bit extra now for protection against future rate hikes.

To help you with the daunting task of choosing your first home loan, Property Observer has four key tips:

1. THINK LONG TERM
   
   Be prepared for your life circumstances to change over the course of your mortgage. You may be employed full time with a steady income, but there are lots of things that can affect your ability to make repayments further down the line. Babies, break ups and getting the boot at work can all make a serious dent in your financial plans.
   
   Think realistically about your life five or 10 years down the track, because you are about to make one of the biggest financial commitments of your life.
   
   
2. FINANCE FIRST
   
   Before you’ve found your dream home, work on finding your dream mortgage. Speak to a mortgage broker prior to purchasing a home and look into securing a home loan pre-approval – while it isn’t a total guarantee that you will be able to finance your house, it’s as close as you’ll get.
   
   Getting pre-approval can help real estate agents take you seriously and give you an idea of your budgetary constraints.
   
   
3. VARIABLE OR FIXED?
   
   With interest rates at a record lows, fixed rates have definite benefits. A fixed rate mortgage will lock your interest rate in and protect you from future rates hikes for a set period, usually three years. Fixed rates are also generally at competitive levels at the moment. However, there are many other factors beyond interest rates will determine what the best loan is for you.
   
   You may benefit from low monthly fees, a flexible loan arrangement or discounts for bundling your accounts with a single lender. Don't be afraid to shop around.
   
   A good mortgage broker will help you decide what is best for you. Once you’ve decided on a loan, it’s wise to revisit your loan with your broker on a yearly basis to see if it’s still the best arrangement for you.
   
   
4. KNOW YOURSELF
   
   Choosing the best home loan is all about full disclosure and being honest with yourself about your finances. Many lenders offer loan repayment calculators that will help you determine how much you can afford to pay each month.
   
   While frugality generally pays, you may find that you just can't live comfortably without a certain level of extra spending money each month, so leave yourself a little room to move if you can.
   
   And remember, your financial decisions will determine what loans you have access to, especially now that your credit history includes more detailed information including when you pay your bills. 

Shopping for your first home is an exciting time, and it's hard to reserve quite the same amount of enthusiasm for mortgage shopping. But taking the time to choose the right home loan can save you a lot of time and a lot of money down the track.