Is a Home Loan Better Than a Personal Loan?
If you have a significant expense coming up or want to renovate your home, you may be wondering if refinancing a home loan or applying for a personal loan is better in the long run. The truth is, depending on your situation, either one might be better. While home loans have lower interest rates, personal loans have shorter loan terms. Pros and cons of personal loans Personal loans have shorter loan periods, meaning you can pay off the debt sooner. However, if you apply for a personal loan, you’ll have to manage both a personal loan repayment and a mortgage repayment every month. In addition, personal loan interest rates are higher than interest rates on home loans. So even with a shorter loan term, you may end up paying more in interest on a personal loan than you would on a redraw of your home loan. Pros and cons of redrawing home loans Redrawing your home loan to fund renovations or significant expenses, such as cars or holidays, makes repayments easily managed. Your lender will add the redraw payments to your mortgage payments, so you’ll only have one repayment every month. The amount you can redraw is based on how many extra repayments you have made on your home loan. If your lender has no redraw limit, you could borrow more than you could from a personal loan. While home loans have lower interest rates, longer loan terms mean you may end up receiving more interest than you would if you applied for a personal loan. If you are debating between a personal loan or a home loan redraw, consult the lending specialists at Mortgage House. We understand the lending process and will sit down with you to get a complete picture of your financial situation to help you choose which loan is right for you.
Is Financial and Independent Legal Advice Mandatory?
When obtaining a loan in Australia, applicants are required to seek financial and independent legal advice. The 1980s saw disarray in lending practices that led to a host of lawsuits in the 1990s. To avoid another decade of lawsuits, lenders got together with the Law Society of NSW to set down a group of standards. Financial and legal advice means procuring outside counsel on the contents of the loan documentation, application, and contract. There’s a lot of fine print in those stacks of papers. A savvy individual with legal and finance knowledge might be able to confidently navigate through the jargon. However, others will not read through it simply because there’s so much to digest. Situations where individuals can receive a waiver on the counsel do exist. Those situations include dollar-for-dollar refinancing even though additional funds are necessary to cover the costs of processing the application. If an interest rate is going to be reduced, no outside counsel is necessary. In these two examples, the applicant would seek a Level 1 DLA waiver. When the applicant seeks outside counsel, the financial and legal advice providers must be two separate entities to avoid a conflict of interest. Financial and Independent Legal Advice Conclusion All lenders have a mandate to ensure applicants have sought financial and independent legal advice before the loan closes. Part of the application process includes providing proof. If a client rejects seeking outside counsel, a lender has the right to reject the application. Some situations qualify for a waiver. For more information, contact our Mortgage House loan specialists who also offer information about current home loan rates.