It's more than an Interest Rate

The right mortgage for you is not necessarily the one with the lowest interest rate.  Over the past couple of years lenders have been competing heavily on interest rates that would be fine if all loan products were the same, comparing apples with apples if you like.

The simple fact is that no two loans are the same even if they are from the same lender. And we are not talking just about the fees.

Your mortgage is the largest financial commitment you are ever likely to make, so what steps should you take.  This list should help:

• Write down a list of all the changes to your cash flow you expect over the next 5 years
• Decide if you are planning on making minimum repayments or planning on paying off the mortgage as quickly as possible
• Work out how much you have in your bank account month to month
• What else are you saving for, example a holiday or your children�s education
• Seek financial advice.  Yes this does cost money, however a small fee when you consider potential tax deductions
• Understand how sensitive you will be to upward rate movements
• What future borrowing requirements will you have, for example renovations, buying a new car
• Understand what level of flexibility you require

With this information now laid out you are ready to tackle the advantages and disadvantages of different types of mortgage facilities. 

Some generic examples are:

• Basic Home Loan: typically suits someone making minimum repayments with a low bank account balance month to month.
• Fixed Home Loan: typically suits someone who is working to a tight budget, is sensitive to interest rate movements and is not planning on making large lump sum repayments
• 100% Offset Account: typically suits someone who has a high bank account balance month to month, is saving for other purposes, and considering future tax consequences
• Line of Credit: typically suits someone who is interested in making minimum monthly repayments (such as interest only) or looking for future flexibility and/or the ability to borrow additional funds without reapplying.
• Master Limit or Portfolio Loan: typically suits those who require maximum flexibility and personal control of their mortgage rather than leaving that to a lender.

The key is understanding that a cheap rate can sometimes prove to be a more costly than a facility that suits you with a slightly higher rate.

Now your homework done, it should be clear that your mortgage is about what you need now and in the future not just about the rate.  With this information in hand you can select the right product to suit you and still get a competitive rate along the way.

_{Source: MFAA}