Navigating the Maze: Your Guide to the Perfect Home Loan

Buying a house is a huge step. Not only does it require a lot of planning, but it is also time-consuming. However, if you prepare well, you can get a very appealing home loan that will take a big load off your shoulders.

In Australia, there are about 10.3 million properties, out of which 6 million have mortgages against them.

However, there are numerous types of home equity loans in the market today, all from different banks. So it’s pretty easy to get confused, especially if you’re buying a house for the first time.

Understanding Different Types Of Home Loans

You will never experience a shortage while choosing different kinds of home loans that are available in the Australian Marketplace. In this section, I am providing you with a quick guide to home loans that are currently available:

Standard Variable Rate Home Loan

In a standard variable rate home loan, the interest rate is continuously changing while aligning it with the Reserve Bank’s cash rate. This means the mortgage value will have lower payments when the rates fall. On the other hand, the regular repayment value increases when the interest value increases.

If you are a first-time home buyer, then this home loan can be suitable for you. You can also maximize all the features of their loan to pay off their mortgage faster and cheaper way.

Honeymoon Rates (An Introductory Home Loan)

The honeymoon rate is also known as an introductory home loan. Here, the lender offers you a fixed lower interest than any standard variable rate at the very initial phase of the mortgage. This usually takes place in the first 12 months.

However, when the introductory period ends, the loan further reverts back to the variable rate. In honeymoon rates, first-home buyers can utilize the saved money to increase the principal repayment.

Now, if you are someone who wants to save money by getting a lower home loan interest rate, then the honeymoon rates can be ideal for you, even if it is only for 12 months.

Interest-Only Home Loan

With an interest-only home loan, you can pay back the loan interest. This is the opposite of the standard principal as well as the interest loan. These are available only first five years of the mortgage.

When it comes to interest-only home loans, the repayments are much lower than principal as well as interest loans.

Other available home loan options

Apart from the above types, there are other available home loan options, which include:

Fixed-rate mortgage

Split-rate loan

Guarantor home loan

Non-conforming home loan

Low-doc /alt doc loan

Age and disability home loans

Construction home loan

Owner-occupier home loan

Here Are Four Prime Ideas To Choose The Right Home Loan For You

If you want to know which home loan will be the best for you, this article can give you some pointers.

The Credibility Of The Provider

One of the best ways to choose the right home loan for you is to first check the credibility of the loan provider.

A lot of agents might approach you and say that their interest rates have never been lower. But how do you know whether their claims are valid or not?

Or maybe they’ll promise you very high loan amounts, and then just before you get your loan, you’ll discover that the loan amount has now been reduced.

So, it’s always better to double-check a loan agent’s credibility by first calculating your loan eligibility yourself. This way, you’ll determine whether to believe someone else.

Rate Of Interest

Another essential factor that will help you choose the right home loan for you is the interest rate.

The interest is factored into your EMI or equated monthly installment when you apply for the home loan. It’s also charged on a reducing balance basis, which means that the outstanding amount gets reduced with every EMI payment.

Home loans in Australia have an interest rate of about 6.09% to 6.24% pa. Female borrowers are often charged even lesser discounts, but this is limited to certain banks only, so check with your loan provider for more information.

Type Of Loan

Home loans are of two main types: floating and fixed. A floating home loan interest varies throughout the loan period. And a fixed one, as the name suggests, remains the same.

While choosing the right one among all home loans in Australia, it’s important to remember which kind of interest you’ll be paying off.

Fixed rates come at slightly higher prices, which is why many people prefer floating interest rates.

If you’re not sure of where the interest will lead, then going for a floating rate will be a better option. However, if you think you’ll be able to repay within 10 years, then go for the fixed one.

Maximum Loan Amount

The maximum loan amount you can borrow for your house is decided by two factors: the value of your property and your income level.

Most banks can fund around 70-75% of the property amount, but a few can go as high as 80%.

Your bank will also look at how much your yearly income is and whether you have a good credit score or not.

Your credit score depends on how quickly you pay back your credit card bills and any outstanding debts. If your credit score is strong enough, you can even ask your bank to consider lowering the interest rate.

Extra Charges

If a loan provider assures you you’ll get lower interest rates, don’t immediately finalize any deal with them.

Bank loans often have hidden charges that people miss out on. So read the terms and conditions very carefully before making a decision.

If the terms and conditions of the documents explicitly claim that there are no extra charges, then you can go ahead.

Other than this, there are also processing charges imposed by banks. This will typically take place after an inspection of your property and income. Again, you can negotiate with your lender regarding the processing fees.

How To Choose A Suitable Home Loan?

Unless you are able to buy a home entirely for cash, you can say that finding the right property is only half of the entire battle. The other half chooses the best type of home loan as well as a lender.

Knowing Which Bank Is Best For Home Loan

Before actually choosing a home loan, first, it is crucial to know which bank is the best for home loans. When you are choosing a home loan, it is important to consider your needs, your financial eligibility criteria as well as the current market needs.

Assessing Your Financial Situation

Evaluate your income stability, your expenses, as well as savings in order to determine exactly how much you can afford to pay each month for your home loan.

Comparing Loan Features and Terms

When you are choosing a home loan, you can compare the loan features as well as terms to find out the best option that aligns with your financial situation.

While comparing, you can consider the loan term, repayment options, total cost, terms and conditions, etc.

Understanding and comparing the loan features helps you to understand what each loan type is offering. On the other hand, review all the terms and conditions to check any penalties as well as restrictions that may apply to you.

Choosing the Right Lender

The selection of a home loan lender is a very crucial step when you are planning to buy a home. Choosing the right lender can influence you not just in the interest rate that you receive but also considers the overall cost, transaction transparency, and simplicity.

However, always remember not to rush when you are making such decisions in your life.

Getting Pre-Approved

If you can get yourself pre-approved for a home loan, the final loan disbursal becomes fast and easy. On the other hand, it helps you to stay focused for the house hunt. Another major benefit of a pre-approved home loan is that it helps you in an easy negotiation process,

Understanding Loan Repayment

When you are choosing a suitable home loan, it is crucial to understand different tenures and interest rates and how these can affect your EMI along with the principal repayment. You can experiment with various loan amounts as well as tenures that are suitable for your budget.

Utilizing Home Loan Resources and Tools

There are various types of home loan resources and tools, such as a loan EMI calculator, which basically helps you simplify your process of estimating monthly repayments. More like, it aids in budgeting and helps you understand how much you can commit yourself financially.

Over To You…

These are the few essential factors that will help you choose the right home loan.

If you have any further confusion, don’t hesitate to contact your bank and ask them to explain the technical aspects and other important terms of home loans.

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