Standard disclosure: we may earn money from the companies mentioned in this post. Visit my disclosure page for more info
It’s natural for would-be borrowers to focus on interest rates when planning to apply for a home loan. They are, after all, the single biggest factor that distinguishes the overall cost of the loan. But they aren’t the only thing that matters. There are many things beyond the rate of interest that distinguish mortgages from one another, and the best choice isn’t the same for everyone. While no one wants to pay any more than they have to, the mortgage that comes with the lowest interest rate isn’t necessarily the best home loan for every borrower.
Factors in addition to the specific interest rate that merit consideration include the following:
- Fixed Rate or Variable: While variable rate mortgages virtually always carry a lower rate at the time the mortgage begins than fixed rate options, people who value predictability and security may achieve peace of mind from going with the fixed rate even if it means an initially higher payment. On the other hand, someone who puts a premium on the ability to make extra payments along the way may find the variable rate—which is usually more forgiving in this regard—a better choice.
- Customer Service: As a mortgage holder, you have to anticipate the possibility that you will have to work with your lender at least occasionally during the time that they hold your loan. A lender with whom you have a good working relationship already may be worthy of consideration, even if they’re giving up a hundredth of a point or two in interest relative to another provider.
- Fees: While virtually every mortgage comes with some fees attached, the number and size of these expenses can vary dramatically from product to product and lender to lender. It’s important to explore all of the hidden costs that exist within each of the options available to you, from start-up charges to early payment penalties to ongoing administrative expenses. You don’t want to incur charges that are attached to services that you are unlikely to ever use.
- Product Features: There are a wide variety of different features that are attached to different mortgage products. Examples include offset accounts, redraw facilities and payment holidays, to name a few. Some of these features come with charges attached, such as a higher interest rate or a fee to access them, but depending on your circumstances you may find them worth the added expense.