Does choosing the right bank affect your home loan?
When it comes to buying your first home, one of the first things you need to decide is which bank to go with for your home loan. This can be a little confusing. Should you just go with your current bank? Which bank has the lowest fees, or best interest rate? How much does choosing a bank really matter? Does choosing the right bank affect your home loan?
And well, as with everything in the finance/property world, the answer isn’t exactly straight forward. But we are going to do our best to explain.
How much does it affect your loan?
The truth is, going with different banks will have an impact on things like how much you can borrow, and how much interest you will pay over the life of the loan. It’s simple math. Let’s say you want to borrow $400,000 and pay it off over 30 years. Bank A offers you 3.99% and bank B offers you 4.02%. This means that over 30 years you will pay back:
Bank A: $686,648
Bank B: $689,139
So, in the scheme of things, that example isn’t a huge deal. However, this example is talking about a 0.03% difference. The difference between some lenders can be much more, so it depends on the individual circumstances.
But here’s the thing – as a first home buyer, you might not always get much choice. You have probably heard people mention that a certain bank has the best interest rates and lowest fees, and while that bank would be the best choice – those banks are also usually selective about who they will have as a customer. You might need to be earning a whole heap of money to be able to get that loan.
Should I wait until I can go with the best bank?
You could wait until you are earning more money and meet the requirements of the best bank, but what if the house prices go up? If you know that a pay rise is seriously close on the horizon, and going with a better bank is going to save you thousands of dollars, then sure, wait. But if you are talking about waiting 2 years to buy a place so you can save $2.5k over 30 years, it might not be worth it. Often the house prices would have gone up by much more than you stand to save. In most cases, you are better off going with a bank that will let you get a loan now, at a little higher interest rate than to wait for the best of the best.
Another option is to go with the best bank that will accept your application as a starting point, and then changing to a better bank in a few years once your circumstances improve.
So what bank should I choose?
The best bank you can choose will be a combination of one that will approve of you due to your circumstances, and that also has the most competitive interest rate out of the applicable lenders. This can be tricky to navigate, luckily your first home hero manager will help you with this as a part of our free service.
Want some help getting your first home in QLD? Contact us.