Buying a home is always a big deal and it is all the more so for the first home buyers. Shopping for mortgage in itself takes a lot of research and legwork and then there is the complicated and often tedious job of applying for the home loan. In Australia, a successful home purchase can take anything from a few weeks to as long as a few months to complete. However, if you want the affair to be quick and stress-free, a good option is to hire the services of a reputable mortgage broker. For example, people living in the East of Melbourne can opt to go with Tundra Mortgage Brokers, a full-service home loan solutions provider servicing the eastern suburbs of Melbourne, including Lilydale, Mitcham, Ringwood and Croydon.
As for shopping for a home loan, there are factors to consider and things one need to be aware of before one even starts with the process. Taking out a home loan is a big responsibility and as a smart borrower, one ought always to look beyond interest rates and take a number of other factors into account in order to find the perfect home loan solution that will fit his requirements to a tee.
Key Things to Know and Consider When Applying for a Home Loan
Do You Have Enough Money to Post the Deposit?
In Australia, a large majority of lenders will only lend up to 80% of the total value of the property (the exact amount will often depend on the applicant’s credit rating). This means that you’ll have to arrange the rest of the 20% (or more) on your own. In addition, you will of course need to keep on paying the monthly interest rates. Accordingly, it is important to take stock of your current savings, your financial status and the security of your income/revenue stream before you even start with the process of mortgage shopping.
However, in case you are not able to source the required 20%, you can always request the lender to let you borrow more. And lenders who work on flexible borrowing terms do actually comply with such requests and given the applicant has a good enough credit rating, he can borrow as much as 95 percent of the home’s total value.
Be aware, though, that you’ll need to pay LMI or Lender’s Mortgage Insurance once your loan amount exceeds the lender’s stipulated limit. Furthermore, you also have the option to add the LMI premium to your loan and then pay it off over a certain amount of time. The thing to note here is: the lower your deposit, the more you’ll have to pay by way of LMI.
Fixed, Variable or Split — which interest rate type should you opt for?
People who want to enjoy greater flexibility over their repayment terms commonly opt for variable-rate home loan. The latter comes with an interest rate that keeps varying depending on factors like the Reserve Bank of Australia’s monetary policy or the general movement of the Australian economy. This means that with a variable-rate loan, your monthly interest rates are likely to change over the period of your loan and typically, you’ll need to pay lower interest rates than if you chose to go for a fixed-rate home loan.
There are also other advantages attached to a variable rate home loan. These include options to easily switch loans (commonly for mortgage refinance) and more flexibility in terms of making extra repayments. The downside is, of course, that you’ll have a hard time managing your finances at times when the rates go up.
On the other hand, fixed-rate loans are the best solution for people who are generally averse to risk-taking and prefer things steady and well-planned. With a fixed rate home loan, your repayment amounts stay the same and will not alter with the vagaries of the economy. On the flip side, you’ll have limited extra repayment options and usually no redraw facility with a fixed-rate home loan. Some lenders will also charge break fees if the borrower seeks to settle his loan or change the terms of the loan within the fixed rate period. This means that if you have plans to sell your property in the short term, a fixed-rate loan may result in a number of penalties.
Finally, there is the option of splitting your loan where a portion of the loan receives a variable rate while the rest gets a fixed interest rate. As to how you’ll want to divide/split your home loan, it’s entirely up to you.
Let a Mortgage Broker Arrange Your Home Loan
As you must have guessed from the above discussion, applying for a home loan or choosing the best type of loan per your requirements is a complicated process, to say the least. And we haven’t even mentioned the paperwork and the likes. Moreover, the perfect home loan is not only about the best interest rates. One must also consider several useful features such as extra repayment options (sans additional fees), easy redraw or refinance facilities, line-of-credit facility, top-ups, repayment holidays, offset accounts, and more.
This is why it is often in one’s best interest to engage the services of a mortgage broker with a good track record, especially when one is a first home buyer. A full-service mortgage broker, such as Tundra Mortgage Brokers, will not only help its clients find the best home loan provider (in accordance to one’s particular circumstances), but will also assist with consultation, primary paperwork and all subsequent correspondence, future mortgage refinance and more.