Taking out a home loan can be a nerve wracking experience, particularly for first time buyers. The key to making the experience not just bearable but fruitful is to understand exactly what you are taking on.
Here are the questions you should know the answer to before getting your home loan.
Are you eligible for government assistance?
Possibly. There are state and federal concessions and grants for property buyers, and the First Home Owner Grant is the best known for first-time buyers. Eligibility turns on where you are buying, the price, and whether you have owned property before, so check the rules in your state.
There are a variety of both state and federally funded concessions and grants for property buyers. Notably the First Home Owner Grant (FHOG) scheme can be a significant aid to first-time buyers.
What interest rate will you be offered?
The lender sets it, based on things like your credit score, the documents you can supply and how much you want to borrow. Two people can be quoted different rates for the same loan product. Together with the balance and the term, the rate drives what you repay.
Your interest rate is offered to you by the lender and will be based on wide range of factors, including credit score, supporting documentation and loan amount. Along with the loan balance and term, your interest rate is what determines the amount you pay every month. If you are unhappy with the interest rate you are offered, you can try a different lender or alternatively improve your credit score to qualify you for lower interest rates.
How much can you afford to repay?
Start with a repayment calculator, and decide whether monthly or fortnightly suits your pay cycle. Then ask the harder question: could you pay more than the minimum, and what would happen if the rate rose. An amount that works only at today’s rate is not really affordable.
Loan repayment calculators are a great way to work out how much you need to pay and whether you want to do so monthly or fortnightly. Ask yourself whether you can afford to pay more than what has been allotted and how this would impact your overall financial plans. Make sure you understand exactly how much you will be paying every month and that you have considered insurance and taxes payments in your budgeting calculations.
Should you choose a fixed or variable rate?
A fixed rate holds for a set period, usually one to five years, so you know what you repay and can plan around it. A variable rate moves, which lets you benefit if rates fall and costs you if they rise. Pick for the certainty you need, not the forecast.
Fixed-rate home loans give a consistent rate for a set period (usually 1-5 years). This has the advantage of giving you certainty over the amount you will repay and ensures you can plan ahead.
Variable rate loans have a changeable interest rate after a certain fixed period, allowing you to take advantage of any future reductions to interest rates. If you do take up this option, make sure that you understand how often the rates will change and which index the rate is tied to.
What is the minimum deposit on a home loan?
It depends on the lender and on your situation. Some borrowers can get a loan with a deposit as small as 5 per cent. A smaller deposit usually means Lenders Mortgage Insurance and a larger balance to repay, so the lowest entry point is not always the cheapest one.
It depends on the lender. Depending on your situation, you may be able to get a loan with a deposit as small as 5%.
If you are looking for help and support with your home loan, contact us today.