The best mortgage available in today’s Australian home-buying market depends upon a potential borrower’s personal financial situation. There are, literally, hundreds of mortgage products on the market and a smart consumer will seek out the best mortgage advice from a trained home loan consultant.
Do a Little Homework First
Before you do find a home loan consultant, do a little homework using a mortgage calculator to determine how much money you may qualify to borrow and what each monthly repayment amount will be. Although this will probably provide you with an estimate only, you should get an accurate set of numbers to initially guide you. Also, read a little bit about the standard loan types available so you have some basis to discuss when you meet with finance professional.
Educate Yourself about Loan Types
Loan types available are many with a variety of different features, as well as different qualifying requirements.
• Variable – Interest rates charged through a variable loan will rise and fall based on what the Reserve Bank of Australia (RBA) sets. There are typically fewer features selecting a basic variable loan opposed to a standard home mortgage. Loan attributes include the fact repayments fall when interest rates do. Flexibility is available making additional repayments as well as having a redraw facility (ability to withdraw any extra money put in) plus low introductory or “honeymoon” rates. On the adverse side is the fact that variable rate loans can have much higher interest rates than standard fixed ones and repayments will rise with an interest rate increase.
• Fixed Rate – Since this loan will establish a fixed rate, repayments will remain the same throughout the loan term. Time of term may vary, however you can lock in repayments for between 1-5 years. The fixed rate period can be three years even if the loan is 25 or 30 years. After each fixed rate period, the loan can be fixed again or converted to a variable interest mortgage. Advantages to a fixed rate loan include that repayment amounts do not rise if interest rates do. It is a conservative approach but for many it is safe method to finance a home allowing owners better monthly budgeting.
• Introductory or Honeymoon – Is a loan that presents a period of low repayments – usually the first 12 months – that allows consumers the opportunity to establish themselves as homeowners. With lower repayments in the first year of ownership, income frees up for all they typical associated costs buying a new home can incur including furniture, landscaping and other necessities. Also, more repayment money in an introductory type loan goes to the principal, thus reducing this more quickly. However, repayments will be higher after the introductory period is complete.
There are many other products available in the Australian mortgage market including ones designed for people with poor credit ratings – called non-conforming. This type of loan usually required much higher down payments at higher interest rates relying not so much on past credit history but more on the borrower’s present ability to make the necessary repayments.
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