The reality is that the best mortgage is the one that meets all your requirements in a mortgage loan. These obviously differ from one borrower to the next. For a first home buyer the best mortgage is likely to be a basic variable rate loan with redraw and the option to fix your interest rate. No matter what mortgage you are looking for these are the 2 features which are critical to have as part of your “best mortgage” package. Generally basic variable rate mortgages are priced very competitively – you are not paying a higher interest rate for features that you may have no need for.
Some mortgage consultants have pushed the line of credit as being the best mortgage available in the market for those purchasing their own home. The benefit attributed to a line of credit is that it can be an all-in-one style of loan account. You use your line of credit for all your financial transactions. Under this so-called best mortgage deal your salary is credited to the line of credit each month. You use a 55 day interest free credit card to purchase your monthly groceries etc. On the due date for payment on the credit card you draw down against the line of credit to pay off the full outstanding balance on the credit card. In this way your salary is working for you to reduce the interest on your home loan while it remains undrawn. This is because interest is calculated on the daily balance of your loan.
But is a line of credit really the best mortgage for a home buyer? It can certainly reduce the interest but claims by some banks that you can repay your loan faster without making extra repayments is misleading. You may not physically make an extra repayment but the surplus from your salary is exactly the same thing. So be careful if a line of credit is touted to you as the best mortgage for you – it can be a trap in that borrowers fail to make any dent in their mortgage over a long period of time because often there is no minimum monthly principal and interest repayment required. Not the best mortgage after all!
If you are an investor with a home loan, then a line of credit may well make for the best mortgage package for you. By having a line of credit in place you are able to draw on this to meet any shortfall on interest or maintenance costs in relation to your investment property. Instead of using your personal income to subsidise or meet these costs you should apply as much as possible of your salary to repay the home loan faster and use the line of credit for all your investment costs. Including a line of credit in any investment loan arrangement is a sound idea and you can be confident that by doing so you will have the best mortgage structure for your needs.
The best mortgage is not always the one with the lowest interest rates. You must be careful to check out a product carefully particularly if the interest rate is well below the market. You might initially think the low interest rate makes it the best mortgage for you but if you are not able to fix the rate down the track or there are other limitations that could prove costly in the future then this is not the best mortgage for you.
