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Holidays, free flights, plasma screen TVs, discounted petrol, retail vouchers and cash-back offers… the list goes on.
When researching the home loan market, you may have noticed more of these types of 'freebies' being offered alongside a range of home loans and marketed as a 'special' introductory offer or available only for a 'limited time'.
One word of caution – beware. While this may seem very enticing, it's important you read the fine print first, before succumbing to the quick fix of a free gift.
No such thing as a free lunch
What is vital for any borrower is to fully investigate and compare the true cost of the loan, and base your decision on that, rather than what an upfront 'gift with purchase' can give you.
There's no such thing as a loan 'free' gift. It's more likely you will be paying for this gift through certain loan conditions such as an establishment fee, a higher interest rate or ongoing monthly fees. The old adage of 'look before you leap' also applies before signing on the dotted line for any loan, and never more so than in the current competitive loan environment. Your loan will be around much longer than the initial joy that a 'free' gift may give you.
Consider your needs and wants
When making your decision you should look at the five key elements of a home loan. These include: - A low interest rate
- Low or no fees
- Flexibility
- Useful features of the loan
- Level of customer service
Once you have looked at these, prioritise what it is you are seeking most from the loan, eg a low interest rate, flexibility, low fees, etc. You may have to compromise a little. For example, if you want flexibility and add-ons such as redraw or extra repayments, you may incur some fees and charges.
However, when comparing products be aware that the difference between loans can add up to tens of thousands of dollars over the life of the loan. When you weigh this up against the cost of a free gift, the choice should become very clear. For example, the offer of a plasma TV costing around $3,000 may seem attractive in the short term, but when compared to a 0.25% interest rate differential on a $240,000 home loan over 25 years – the decision could cost you $12,000 in interest.
Look at the big picture
You should take a step back and become more personally involved in such an important long-term financial decision.
If you're prepared to do your own leg work and compare the basic features of the loans that suit your own individual circumstances, you can be sure that you will make the correct decision. And more likely to save considerable money. Homebuyers also need to take stock of all loan fees and charges attached to a home loan, such as ongoing account-keeping fees, redraw fees and fees for professional packages. What one lender may charge on a particular loan, another may not. The difference can be significant.
In a market where the borrower has so much choice there is no reason to be taken in by the immediate appeal of a gift. The best gift a borrower can give themselves is the loan which suits their long-term financial needs, and one which they choose themselves
Your Mortgage NO.72 MAY 2007 |
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