Have you finally decided to buy a house and need a first home loan? Don’t you know how to deal with the multiple offers of the banks and you are undecided between fixed and variable rates?
Find below some important rules for choosing the first home loan that is always good to remember. A brief guide that can help you make a very important decision that will impact your finances for many years
So here are the 5 golden rules that should follow anyone who has to choose their first home loan
Rule No. 1 – carefully choose the duration of your first home loan
Have you already chosen the house of your dreams or do you have clear the “cut” and the amount you should spend on the purchase?
You also have a fairly precise idea of the amount you will need to ask the bank for your first home loan – euros more, euros less?
At this point, the first important choice to make is the one relative to the duration of the loan. It is not a trivial choice, because it has important repercussions. At this moment it is not necessary to decide in a timely manner “my mortgage will last 23 years and 4 months”, but have an idea if we are oriented towards a very long duration (25-30 years) or far less (for example 10-15 years). Of course, much depends on the extent of the monthly (or semi-annual) installment we are willing to support, but also on other factors.
With the help of one of the many simulators on the internet, we can get an idea of how much the installment would be in the various hypotheses of duration, but two general considerations apply:
- a very long duration is often the only possibility we have for making the purchase sustainable. The installment is lowered, it is true, but the interests that we will have paid to the bank at the end of the loan will be much higher
- a shorter duration leads to a higher installment to be paid, but the interest paid to the bank will eventually be lower. It also evaluates the financial aspect of the transaction
Rule No. 2 – Choose between a fixed or variable rate mortgage
Now that you have an idea of the duration of your first home loan, try to simulate the main fixed and variable rate mortgages using one of the search engines you find on the web. You will notice that the installment will be higher for the fixed rate mortgage: it is normal, the certainty of having a constant installment has its price.
The dilemma between fixed and variable rates is not easy to solve, and there are many variables, both objective and subjective, to be taken into consideration. Keep in mind that the fixed-rate mortgage generally costs more at the beginning and should be the best choice if the rates are very low and destined to grow over time. The variable rate saves you money at the start of the loan but is riskier. The choice may, therefore, depend very much on the duration chosen (the longer it is, the greater the risk for the variable rate) and on one’s risk appetite
Rule No. 3 – Choose the best bank for your first home loan
At this point, you can start doing simulations to see on the Internet the offer of the main banks for your first home loan. Evaluate the best, trying to understand not only how much the installment would come to you, but the APR and the additional costs such as appraisal, investigation, insurance, etc. Also, contact your bank to hear what they can offer you (after all you are a customer they want to keep). If possible identify at least 2-3 banking institutions that could have the right credentials for your first home loan.
Rule 4 – Before choosing for a first home loan, speak in person with the banks
Did you make a “short list” of the banks that are closest to your needs? Go talk to them, make sure you have the right requirements for them (income, amount requested, age, guarantees, etc.). Find out about loan disbursement times and other aspects that you often don’t find online, such as how the loan is partially repaid, how the pre-amortization period works, etc.
Rule No. 5 – Try to negotiate your first home loan
Have you made your choice? Why not try negotiating with others or with the bank you chose? The contract for a first home loan is worth tens if not hundreds of thousands of euros, try negotiating on some points that are important to you (for example a more advantageous interest rate), explicitly stating that you have other institutions that make you a best offer: to “take” the customer the bank officer could have levers on the first home loans that could save you something.
Remember that the first home loan is not a standard contract such as telephone or gas, banks can sometimes apply more advantageous conditions if the customer is reliable or just because at that time they have a more aggressive policy and have as their goal to acquire many customers on the first home loan. It is worth taking advantage of it.
These are just some of the rules to follow, but they are very important. The choice of the first home loan is a very important step, it is worthwhile to dedicate some time and particular attention to it: it could have a significant impact on your finances in the following years.