When searching for a mortgage, prudent applicants will consider factors beyond interest rates, as a residence is a substantial investment.

When you buy a home, the process is not as simple as going to the mall and getting a piece of paper that says you own a house. Many people in Australia have to wait weeks or even months to finish the home-buying process.

One of the first things you need to do when you want to buy a home is apply for a home loan. You should know about your funds and your choices so that the process goes smoothly.

Before applying for a home loan, you need to know some simple things. To help you pick the best home loan deal, think about the following:

Do you have enough saved up for a deposit?

Prior to searching for a lender, it’s important to evaluate your current financial situation, including your savings and the stability of your income. It’s important to check your credit rating as well.

Just a quick reminder, it’s important to ensure that you have sufficient funds to cover 20% of your property’s value. This can be quite a challenging obstacle to overcome, especially for those who are purchasing their first home.

Many lenders have a policy where home buyers can borrow up to 80% of their property value. Therefore, you will need to obtain the remaining 20% from your savings and other sources. For a $500,000 home, you can ask your lender to loan you $400,000, and the remaining amount is your responsibility.

If you’re unsure about meeting the 20% deposit requirement, you can always enquire with your chosen lender about the possibility of borrowing a higher amount. Certain lenders are quite accommodating and may allow you to borrow up to 95% of your home’s value.

• Just a heads up: if you’re thinking of taking out a loan that exceeds your lender’s limit, you’ll need to pay lenders mortgage insurance (LMI). This type of insurance provides your lender with protection in the event that you become unable to fulfil your financial obligations.

Arranging LMI is usually the responsibility of the lender, so you don’t have to worry about it. Just pay a one-time premium when your home loan is approved. Additionally, you have the option to include the LMI premium in your loan, allowing you to spread out the payments over a specific period of time.

Typically, if you make a higher deposit, your lender will require a lower LMI payment.

Which interest rate type would best suit your needs?

It is crucial to carefully evaluate the type of interest rate that would best suit your needs and current situation prior to applying for a home loan.

If you’re someone who values the potential for lower interest rates and is comfortable with taking on some risk, opting for the variable rate is the best choice. A variable-rate home loan features an interest rate that fluctuates in response to changes in the Australian economy or the monetary policy set by the Reserve Bank of Australia (RBA). When you have a variable-rate home loan, the amount you pay each month is likely to fluctuate throughout the duration of your loan.

In addition to the opportunity for lower interest rates, a variable-rate home loan offers various benefits that can be advantageous. These include the flexibility to make extra repayments and the convenience of switching loans.

One major drawback, however, is that it may complicate your budgeting, particularly when rates are higher.

If you prefer a well-organised approach, the fixed-rate home loan is the ideal choice. A fixed-rate home loan is ideal for individuals who prioritise budgeting, particularly first-home buyers. This type of loan ensures that the repayments remain consistent throughout a certain period of time. It simplifies budget planning and protects you from unexpected increases in interest rates.

Nevertheless, the interest rate for this particular loan is typically set for a specific duration, typically ranging from one to five years. Upon the completion of the fixed-rate term, the interest rate transitions to a standard variable rate.

What home loan characteristics are necessary?

You must go beyond the lender’s interest rate to be a smart borrower. Great mortgage deals depend on more than just the rate. You should also consider various aspects that will simplify your lender interactions before applying for a home loan.

The opportunity to make extra repayments without penalty is a great feature. Extra payments will speed up debt repayment and lower interest rates. Having this feature will save you hundreds throughout your loan.

Redrawing your loan might be helpful if you make additional payments. You may utilise your advance payments for house renovations, automobile upgrades, or important life events with this service. Redraws are usually only possible in variable-rate home loans.

Repayment holidays, top-ups, offset accounts, and line-of-credit are additional useful home loan features.

What factors must you consider before choosing the home loan?

When you look at something, you should always look at the whole package, not just one part of it. It’s likely that the fees for a loan are very high even if the interest rate is very low. For the same reason, if the loan comes with a lot of extras, you’ll probably have to pay more in fees or interest.

Don’t forget that format is the most important thing to get right before you pick a rate or loan.

To get the right loan, you should also think about what you need the money for and what benefits you really need.

Your loan needs to be tailored to your specific needs, whether you’re a first-time buyer, a second-time buyer, self-employed, or planning to renovate, refinance, or trade.

When you buy your first home, your loan should be easy to pay back, especially in the first year. There are a lot of different parts to a home loan, so don’t just look at the interest rate and the setup fees up front.

The size of the deposit you can afford is another basic thing to think about. If you don’t want to pay lenders mortgage insurance (LMI), which can cost up to several thousand dollars, most mortgage lenders will only give 80% of the home’s value. Some lenders will give you up to 100% LVR without LMI, but you’ll probably have to pay more in fees or interest.

Once you know how much you want to put down, you can narrow down the home loans that are best for you.

Features to look at

Not all the features in a loan package will be a perfect fit for you, but having more flexibility is always a good thing, especially if your situation changes.

These are a few features to consider when searching for a home loan that can come in handy in any situation:

• Being able to make extra payments

In the long run, making extra payments on your home loan will save you money because these extra payments go straight to the capital. But check with your lender to make sure they don’t charge extra late fees.

Ask your lender if you can make payments through direct debit, ATMs, the internet, or the phone. This will make things easier for you.

• You can fix your loans or split them up for free.

Fixing your rates can give you peace of mind because your monthly payments will stay the same for a while. Be careful with your money if you want to use this.

Ask your banker when you get a home loan if they will fix your loan for free, whether it’s the whole thing or just a part of it. This will be a huge help as you make your spending plans.

• Offset Account

It works like a high-interest savings account, where money is added to your loan amount every day. This can help you save money on interest. This cuts down on the amount of the capital that is being charged interest on. 

• Taking out a new loan

It’s also important that the loan can be moved to a new property, especially if you plan to sell your current home and buy a bigger one in the next few years. Portability lets you keep the services that are already connected to your home loan and avoid having to pay fees for setting up new services and applying for new loans.

Finding out what the loan’s comparative rates

One way to see how one home loan compares to another is to look at its comparative rate.

Customers may better understand the whole cost of a loan by comparing rates. The whole cost of a loan, including interest and any other applicable fees and charges, expressed as a single percentage.

Lenders may offer what seems like a ridiculously cheap rate, but the comparative rate shows the “truer” cost of the loan, so consumers should always look at it.

Thus, it’s possible to save money in the long run by going with a rival that offers a lower comparable rate but a higher advertising rate.

Though helpful, homeowners should exercise caution when dealing with comparing rate polishing. “Comparison rate polishing” occurs when a lender adds variable costs on top of the fixed fees already included in the comparison rate calculation. This is why it’s so important to do your research before applying for a mortgage on your home and to ask detailed questions to ensure you understand everything.

Finding the perfect lender

Ask your recommended lender about house loans. This is handy and saves time and effort because you already use your bank for other reasons.

However, you should also compare different home loan programmes.

If you believe you can locate better and more competitive mortgage options outside your bank, use mortgage comparison sites.

Ask your lender how post-settlement concerns are addressed. Are lender customer service professionals accessible or do they use a contact centre or messaging service?

Having decision makers on hand may save time and stress.

Transparency is also important—first-time home buyers are sometimes overwhelmed by the variety of house loans. They frequently feel confused and unable to decide.

You must make a loan clear and comprehend its expenses and advantages before picking.

Lenders must clarify loan details, so ask all your questions.

Most individuals leave their loan after three to five years, so enquire about departure charges. You must request all fees.

If you browse around, you may locate lenders with cheap rates, fees, and flexibility. Don’t consider a lender’s initial offer as the greatest deal; conduct your homework and discover what’s best for your financial circumstances.

Making contact with a mortgage broker

Use a broker if you aren’t confident you can locate the greatest offer on your own.

Finding the proper broker to assist you in getting the structure right might be a struggle.

If you’re looking for a trusted and experienced mortgage broker to guide you through the process, consider contacting ASK Financials. Our team is dedicated to helping you find the best mortgage solutions tailored to your needs. Reach out to ASK Financials today to start your journey towards a better mortgage deal!

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