Lower interest vs. lower total cost – which is best?
There are several different types of real estate finance and hundreds of lenders in the market. So which is the best option for you? To answer this important question, MTYF believes you could benefit from the professional advice provided by our property finance associates.
Our associates will explain that a low variable interest rate does not necessarily add up to good deal over the life of the mortgage, tempting as it may be to first home buyers who are usually stretched to the limit of their repayment capacity.
The truth is that a basic variable interest rates may exclude access to many of the options that could shave thousands of dollars off the total amount you pay for the property over the life of the mortgage. Why? Because the most obvious way to save money on the overall cost of the property is to pay the mortgage off faster. The more years you shave off, the more interest you save and the sooner you pay off the capital. This can be accomplished fairly painlessly in several ways, including:
- Pay a little more than the minimum payment each month – even a few dollars makes a difference;
- Make a one off lump sum payment if you receive a bonus or an inheritance;
- Pay the mortgage fortnightly instead of monthly – painlessly paying of an extra month a year (26 payments instead of 12);
- Link the mortgage to an offset account which earns interest on your salary to repay the interest component of the mortgage.
On the other hand, some or all of these options may only be available to you if you choose a more sophisticated mortgage at a slightly higher interest rate.
There is also the issue of whether or not you would be better off to freezing your interest rate in today’s low interest environment. Mortgage interest rates are linked to the Reserve Bank rate and can theoretically vary from month to month, but you could choose to fix the rate for a period of time, or to cover both options by fixing half the mortgage and leaving half at a variable rate.
MTYF property finance associates have access to more than 300 financial products from more than 100 finance providers and will help you to assess your total borrowing capacity and select the most suitable loan structure to meet your needs and objectives. There is always a mortgage solution you can afford if you know where to look for it.