Buying a home is a significant decision that requires careful consideration, especially when taking out a home loan to finance it. Once you purchase your home, you’ll be committed to your home loan for almost 20-30 years, which could significantly impact your finances and lifestyle. Therefore, it’s crucial to thoroughly review and understand the terms and conditions of your home loan contract before signing on the dotted line. By doing so, you can ensure you’re getting what you signed up for and avoid any unpleasant surprises in future.
You may feel tempted to overlook the fine print in the excitement of owning a home, but neglecting to review your loan contract could lead to costly mistakes down the line. Here’s a list of five essential things you should remember to check in your home loan contract before signing the dotted line.
1. Interest rate
The interest rate is one of the most important factors to consider when reviewing your home loan. It’s crucial to understand whether the rate is fixed or variable. If you choose to fix your interest rate, your repayments will not change for a set period of time. At the end of this duration, you’ll typically shift to the variable rate offered by your lender, with an option to fix the loan again if you choose.
It’s also important to be aware of any introductory rates in your home loan contract. Introductory rates are generally offered to new borrowers and expire after a short while. Once the introductory rate period is over, you’ll be shifted to the revert rate mentioned in your contract, which may be significantly higher than the introductory rate.
2. Loan amount
Remember to double-check the loan amount in your contract to ensure it matches the amount you agreed to borrow. This can help avoid any potential misunderstandings further down the line. You can also use a repayment calculator to check your repayment size and the total amount you’ll be repaying over the life of the loan.
3. Loan term
Your loan term is the period over which you’re going to repay the loan. The average loan term is 25-30 years, but it’s possible to get a loan with a shorter or longer term depending on your financial situation and goals.
A shorter term may save you money in interest charges, but your monthly repayments will likely be high. A longer-term may be easier to manage with smaller monthly repayments, but the longer you stretch the loan, the more interest you’ll pay, increasing the cost of the loan to you.
4. Fees and charges
When you take out a home loan, the lender may charge you various types of fees in addition to interest charges. This may include application fees, annual fees, and fees for features such as extra repayment or redraw facilities.
While these fees may seem small, they can add up and significantly increase the cost of the loan to you. Taking the time to review your home loan contract and understanding the associated fees and charges can help you secure the best possible deal and avoid any nasty surprises.
5. Repayment term
Review the repayment terms of your home loan to check whether you need to make monthly, fortnightly, or weekly repayments. Most lenders also allow you the flexibility of modifying your repayment frequency if you need to.
It’s also worth checking if there’s any penalty for making additional repayments on your home loan or closing the loan early. Some lenders may charge an early termination fee, which could make it costly to refinance your loan. Make sure to review the repayment terms on your loan and clarify any concerns you may have with your lender to stay on top of your loan.
Remember that a home loan is a huge financial commitment, and any errors in the contract could make it difficult for you to manage the loan later. Ensure that you read the contract thoroughly before signing the dotted line. If you find any conflicting provisions, feel free to discuss them with your lender and request changes.
It’s important to choose a home loan that aligns with your expectations and budget. You may want to compare deals from other lenders if you’re not satisfied with the provisions in your loan contract. You could also speak with a mortgage broker if you have any queries regarding your home loan or need help on your mortgage journey.
By Vidhu Bajaj,
Hashching Content Writer