Everything You Need To Know About Home Loans
Purchasing your dream home can be very difficult, especially for first time buyers. There are so many things to consider like the neighbourhood, type of house, proximity of the place, and more decisively –financing. Before signing up for home loans, here are some of the things you should know:
1. Home Loans and the Right Amount.
Assessing the amount of the loan can only be done by no other than yourself. Only you can assess how much you’ll be able to bay in the long run. Since it will dictate your monthly repayments, it’s vital not to borrow more than what you can afford.
This begins by measuring a person’s monthly income and average spending habits and expenses. Once you have the disposable income left, you need to consider the monthly mortgage and factor in the rise in interest rates. Most people consider that the total repayments should not be more than 30% of monthly income.
2. Loan purpose
Yes, you’re planning to purchase a real estate property, but for what purpose?
• As residence – If you’re purchasing a new house for the first time, it’s important to consider the long term effects of the property and of the loan.
• As an investment- If you are planning to buy a property as an investment to be rented out or to modernize and sell, an investment loan might be needed for this.
• Reverse mortgage – For individuals who are more than 60 years old, reverse mortgages can be ideal. With you own property, the reverse mortgage loan permit you to have a loan against the equity of your house and utilize it as you desire.
3. Loan type
How do you assess the most proper loan to be used?
• Pros – Having a fixed interest rate would give you a guarantee that you’ll be paying a same amount all throughout the course of the loan. This provides protection against rises in rates. This provides a better estimate on your actual expenses relative to rates that are fluctuating.
• Cons – If the interest rates would decline, this would give you some lost opportunity cost. This type also usually depicts higher prices than variable rates since it reflects the security premium for having a constant rate.
• Pros – Variable rates normally follow the Central Bank’s cash rate. These are generally lower and a decrease in the rate would also mean lower repayments for you.
• Cons- Since an increase would mean higher payment, it would be hard to budget and project the repayments for the next couple of months.
• Pros – Low doc or low documentation loan is good for people who can’t do the paper works for a usual loan. This means they won’t be asking for payslips and statement of assets. You just have to prove your ability to repay the loan.
• Cons – A premium for the risk fee could be added on top of high interest rates for low doc since lenders see this as a very risky transaction.
• Pros – This offers a relatively lower rate on a specific time period, normally during the first year of the loan. This is ideal for first time buyers who are not yet familiar with loan rates and repayments.
• Cons – Upon the end of the introductory period the interest rates instantly become higher. It would even mean higher payments than the normal deals in the market.
4. How much deposit will be needed
Of course, saving and keeping the money for the deposit is one of the most challenging things that most first time buyers face. The minimum deposit usually depends on the bank and the type of home loans. Normally, it is mandated to deposit at least 20% of the total value of the real estate property.
It is recommended to save for a huge amount of deposit. The bigger the deposit, the more attractive it would be to the lender. Moreover, it would take fewer repayments in the futures and you can also save yourself some fees from interest.
5. Feature of the home loans.
Finding the right loan takes a lot of effort because you also need to consider the features that the program offers. Here are some of the most important ones to consider:
• Mortgage offset – A deal account related to your mortgage in which the balance of the account makes up for the unpaid balance of your loan to decrease the total of interest owed.
• Redraw facility – This permits you to use extra money that is paid in the mortgage.
• Lump sum repayments – If it allows you to pay bulk payments occasionally
• Extra repayments – If the program permits you to pay extra repayments.
• Split option – This option allows you to have a fraction of your interest fixed and the other one variable.
• Transferability of the mortgage – Permits you to move your loan from your current home to a new or different real estate property.
• Interest only – This is most fitting for people who are getting an investment property.
6. Extra fees
A lot of buyers find issues on hidden costs and charges, on top of the loan and interests being paid. Here are some of the most common fees that are paid in home loans:
• Cost for applications
• Extra repayment fee
• Portability fee
• Exit costs or break fees
• Late payments
• Redraw payment
• Application fee/up-front cost
Ratings of Different Home Loans
Of course, it is still best to find benchmarks to assess the loan programs. The most effective way is to compare loans online, and go over the features to get the best deals for home loans in the market.