Meeting the needs of your future self

Wednesday, 7th May 2014

future self

Choosing between different loan products can be a challenge at the best of times. The difficulty lies in trying to weigh up different features, fees and interest rates to work out which loan best suits your particular requirements.

Adding to the complexity is the fact that, ideally, you want to pick a loan that meets both your current and future needs.

While it is impossible to consider what will happen over the entire life of the loan, which could be 30 years, you do need to think about how your life could realistically change in the next three years.

What could change in your life? Will your family circumstances be the same? What about your job situation? Is there a promotion on the cards or are you worried about retrenchment?

You should also consider your specific plans for the property in question. Will you be selling the property in the near future or renovating it? Or, perhaps you want to leverage this property to expand your portfolio.

You should even consider things beyond your control, such as whether interest rates are likely to change during that time.

Your responses to these ‘what if’ scenarios will help determine how much flexibility you require in your loan.

For instance, will you need the flexibility to make additional payments or access any additional money you have repaid? What fees will apply in these situations and what are the restrictions?

When it comes to redraw facilities, loans often vary with regard to how many redraws are allowed, what fees are involved, and what the minimum and maximum redraw amounts are.

If you plan to sell the property within a relatively short space of time, you might consider the early repayment fees charged by different loan. Bear in mind, however, that these fees often come under different names, such as a delayed establishment fee.

Generally speaking, the more flexibility offered by a loan, the higher its interest rate will be.  Basic, low-rate loans tend to offer very limited features.

However, having flexibility can save you money in the long term, so it’s important not to focus entirely on the interest rate.

If you find that a loan no longer meets your needs, you can always consider refinancing. But if you enlist the expert help of a finance broker, you can save yourself time and money.