how to choose a home loan
By Charles Hopkins
Published 09/20/2007 | Finance
If this is your first time choosing a home loan, it can be quite a
headache. Below is a list of key points you need to take note of in
order to make the decision to choose a home loan.
What are your financial means?
Before searching for a home loan, you have to ensure you have the
financial means to support. You may have found the dream house of yours
but at the end of the day, you may not even afford it and hence is not
a time efficient thing to search for a house you can't really afford.
Be honest with yourself and lenders and go for a pre-approved home loan
and find a house you can really afford.
What is the intended length of stay in the new house?
You have to first consider how long you intended to stay in the new
purchased house. Normally a homeowner stays in their home for 8-12
years. This provides a useful guideline for you on what kind of home
loan to apply for as well as an indication of your financial stability.
In addition, the intended length of stay in the new home also has
to do with investment. In a normal trend, houses usually appreciate at
5% a year, of course depending on factors like economic situations. So
with the value of the new home and home loan tied together, there is a
period of time that you need to stay in order to recoup the investment
costs. With this in mind, you need to plan carefully and be in the new
home for at least 4-6 years to see break even in investment.
Choosing a fixed rate or variable rate Home Loan
The duration of stay you intended for the new home will affect the
type of home loan you take up. Depending on economic conditions, if you
intend to stay for a short period of time, say for a few years, then a
variable home loan rate is a good choice. However, if you planned to
settle down for a long period of time like raising a family, a fixed
rate home loan will be a better choice.
Be honest with yourself and make the right decision
When you are buying your first home, you have to first assess
carefully where you are and where you would like to be in the next 7-10
years. You have to be honest with yourself and need to look at what you
can afford and how much debt you think you can really handle. All these
can be daunting and hard issues but needed to be considered carefully
in order to avoid any headaches that may arise in the future.