What’s more important, the interest rate or the repayment amount?
Humans are driven by different priorities. When it comes to borrowing money, some people are focused on the interest rate, some are focused on the repayment amount, whilst others care less about either and just want the cash to achieve their bigger picture.
So who’s right? And what’s more important?
Money is individual to you. Your perception of money, your relationship with money, and your priorities with money, is unique to you. There is no right or wrong answer.
In my daily work, I come across clients who are so rate focused that they lose track of the bigger picture, which ultimately costs them in lost opportunities. Don’t get me wrong, sourcing money for the lowest cost is very important and we certainly make it our priority to ensure that our clients are not tipping the banks with loan interest and unnecessary fees. In fact, we also focus on loan structuring strategies to ensure our (investor) clients aren’t tipping the tax man either.
Since setting up my first mortgage broking business 13 year ago, I have written close to a $Billion dollars in home loans, so you could say I’ve seen a lot in that time, and I see what works and what doesn’t.
Let me share a tip with you. Focus on your bigger picture and understand that there is always a cost of doing business. Taking on home loan debt comes at a cost (e.g. the interest rate is a cost of borrowing money). However this cost is usually secondary when you consider the bigger picture. For you, the bigger picture may be… security, comfort, accomplishment, wealth creation, shelter, a goal achieved, a bucket list item ticked off, and so on.
If you plan to buy your first home, your first investment property, upgrade your home, or buy another investment property, then my counsel to you is this. Focus on what’s most important, and not what banks and lenders try to grab your attention with, which is usually the interest rate.
Let’s face it, Australians are drawn by bargains, and banks/lenders are very well aware of this, which is why they go to town advertising headline special interest rates to draw you in their front door and sign you up for “their special deal”.
Ask yourself this. Does the bank promoting that special 3.65% variable home loan rate really care about your life goals? Your family goals? Your bigger picture? Or are they more concerned with meeting their quota to satisfy their shareholders?
I’m sure you get my drift. Be selfish and be ruthless when it comes to borrowing money, but focus on what really matters.
Loan repayments should definitely be a key consideration for you, as you don’t want to take on debt that you can’t afford. A home loan is a long-term proposition (for most people) so consider the bigger picture, but also consider the underlying asset and what that means for you and for your financial security.
When buying property, a trusted Mortgage Specialist is the most important person in your corner for the reasons I outlined above. Most Mortgage Brokers have 30 plus banks/lenders on their panel, so their priority is (or should be) to ensure that your new home loan is congruent with your bigger picture, and that the debt you take on is what you can afford.
If you’re looking for a recommendation, remember this. The best businesses are usually those that are flat out with enquiries from referred business, as opposed to those that spend big bucks on getting their brand in front of you as much as they can.
I hope the above gives you a different perspective when it comes to borrowing money.