First-time homebuyers, like many other kinds of consumers, must take into account factors other than the quoted interest rate on their mortgage. It’s crucial to compare shops and conduct some preliminary research before selecting a house loan that fits your needs.
The process of making a first-time home purchase can be exciting and nerve-wracking. You want to make a confident and thoughtful choice, but it can be difficult to know which one to choose given the variety of first-time home buyer home loan options available.
Finding out if you are qualified for a house loan in the first place is a must before you can move on. To maximize your borrowing capacity, it’s a good idea to pay off any sizable bills you may have, such as credit card debt.
There are numerous alternatives for different types of house loans. Depending on how you plan to use the property, you may not get the best mortgage possible. An owner-occupied loan is your best option if you intend to live in the home for which a loan is being obtained. Prospective investors, on the other hand, might favor an investment loan, which aids borrowers in buying a home with the goal of turning a profit on it through their investment, as opposed to living in it.
1. Interest-only versus principal and interest
You may repay the loan at a different rate. When choosing a principal and interest loan, for example, you agree to pay back the principal (the amount you borrowed initially) plus the interest on it when it’s time to make a return. Contrarily, if you take out an interest-only loan, you will only have to make interest payments for a predetermined amount of time. However, after that period is up and you must resume making principal and interest payments, your repayments will increase significantly.
Since they can find renters, realize capital gains, and eventually hopefully sell at a profit all while keeping their mortgage payments low throughout that time, investors are more likely to favor interest-only loans. The standard interest-free period that lenders offer is five years, extendable for an additional five. To be certain, though, confirm with your particular lender.
2. Variable versus fixed interest rates
Home loan interest rates may also be fixed, variable, or occasionally both. While a variable rate changes depending on the current market rate, impacting the value of your repayments, a fixed rate home loan keeps your repayments at a fixed interest rate throughout the payback period. An additional choice is a partially fixed rate, whereby a portion of your loan is fixed at a specific rate while the remainder is changeable. In this situation, you are usually free to choose how much of the loan you would like to keep for yourself.
You may be able to access a variety of extra features thanks to the partially fixed rate, which is more than you might be able to with a loan with a fully set rate. The ability to have an offset account, which lowers the amount of interest you must pay by connecting an account for your salary to the home loan, and a redraw facility, which enables you to access additional repayments you have made to help with cash flow for other, non-home loan purchases, are two examples of these features. Always consider your alternatives to see whether extra perks are appropriate for your unique situation; you might be able to lower the cost of the loan by skipping extra features.
3. Demands for deposits
The maximum loan-to-value ratio (LVR) that is often permitted is 95%, which necessitates the requirement of a deposit of at least 5%. This is the case unless you have a cosigner, in which case, depending on the lender, you could be able to borrow 100% or even 110% of the property’s worth.
Most of the time, a 20% deposit or 80% LVR is needed in order to avoid paying lenders mortgage insurance, or LMI. Contrary to popular opinion, LMI is a type of insurance that protects the lender—not you—in the event that you go into default. However, if you have a 15% deposit, certain lenders will offer LMI at a reduced or even free rate.
The total cost of LMI might reach hundreds or even tens of thousands of dollars, depending on the policy, the value of the property, and the size of your deposit. Additionally, it is frequently included in the mortgage, so you must pay interest on the insurance policy as well. Along with paying interest on a bigger portion of the home’s value, higher LVR home loans typically have higher interest rates as well.To learn more about investment loan rates Australia, contact us.
4. Special offers for first-time buyers
Some lenders offer unique lending options for first-time homebuyers. Benefits may include a decrease on the interest rate or less onerous deposit requirements, as well as the elimination of annual or monthly fees for the duration of the loan. The condition is typically that first-time homebuyers agree to a packaged home loan.
As you might have imagined, packaged home loans combine additional features into a single offering. This could consist of a credit card, an offset account, insurance discounts, or other features. In exchange, the first-time home buyer often pays a yearly package fee, which is typically in the range of $400 but can vary.
The advantage for the lender in this situation is that all of these items are now connected to a single person. This makes it more difficult to get out from under these products if you decide to refinance. In the event that you pay off a packaged home loan, there can also be additional expenses. You must choose what is best for you in this situation because it is really convenient but comes with a price. Talk with the best mortgage advisor for better options.