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Tag : home loan

What Type Of Loan Is Right For You?

The array of mortgages available helps a good finance broker to tailor a package to suit your needs. Here are just some of the options.

 

Fixed-rate mortgages
With a fixed-rate loan, you know exactly how much you’ll pay per fortnight or month for the fixed period of the loan (usually one to five years).

 

Variable rate mortgages
Repayments can change during the life of a variable-rate loan, so you may pay more or less as interest rates rise or fall. If you’re fairly sure that rates are set to fall, this is a good option.

 

Principal and interest mortgages
In this mortgage, you are paying the amount lent to you plus the interest.

 

Interest-only mortgages
With interest-only, you are paying just the interest on the loan – you are not paying off any of the original principal.

 

Split home loan (fixed and variable)
You can choose to have part of your loan at a fixed rate and the other part can be at a variable interest rate. If rates do fall, the interest will go down on the variable part of your loan, but you aren’t taking as big a risk should rates rise.

 

Redraw facility
If you have a variable-rate loan and you make extra repayments, then you can withdraw that additional money when you need to (you can’t do this on fixed-rate loans).

 

Land loan
A land loan lets you buy a block of land without the pressure to build on it as soon as possible. Land loans are usually variable interest for up to 30 years.

 

Construction loan
For buying land, building or renovating your home, a 12-month construction loan can be the best way to go. Usually, up to 90 per cent of the property value can be borrowed.

 

Non-PAYG loans
For self-employed people, a home loan can still be arranged using differing supporting documentation that shows your ability to service a loan and might include BAS and bank statements. You self-certify your income, which will need verification. You may be able to borrow up to 80 per cent of the property’s value.

 

Equity release
This loan type allows you to convert a portion of your residential property ‘asset’ into cash or an income stream while still allowing you to continue to live in your home.

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What’s The Secret To Buying Your First Home?

Saving for it.

Saving for a home loan or mortgage isn’t glamorous but it has to be done. So here are some savings tips for first home buyers to help get you into the property market.

How much should You be saving?

One of the first rules of saving is to set a goal. But what should that goal be? Different people have different needs, but a rough guide is that you should be saving 10% of your pre-tax income. Not saving anything like that? Read on.

What are you spending?

To help with saving, you need to know what you’re currently spending. And not just on the big items like rent, utilities and groceries. Get yourself a notebook and every time you spend money, write it down. Everything. For at least a month but preferably longer. You’ll be surprised where your money goes.

What do you really need to spend?

If you’re a typical first home buyer, you probably haven’t been exercising a lot of financial restraint to this point. Invited out to dinner? You go. See shoes you like? You buy. Take lunch to work? Are you kidding? There’s nothing wrong with that, but if you really want a home, you’re probably going to have to start making some sacrifices. Look through your spending record and decide what you’re willing to give up. You might decide, for example, that life would still go on if you didn’t spend $1500 a year on coffee.

Get rid of credit card debt

You probably used to pay your credit card off every month. But then one month you couldn’t quite manage it and things snowballed from there. That credit card debt is killing you. It is expensive money and you need to eliminate it. Consider transferring the debt to a new card that gives you an interest-free grace period, and save like mad to get your balance down to zero as soon as possible. Then consider the old trick of keeping your credit card in a cup of water in the freezer.

A savings history

If you’ve spent everything you’ve earned – and then some – don’t be surprised if the mortgage market doesn’t put out the welcome mat. lenders like to see proof that you can save. So start putting something aside every month and you’ll be surprised how quickly it adds up – and how much more popular you’ll be among the lenders.

Want more savings tips? Talk to us today!

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Should I Have Fixed Rate, Variable Rate Or Split Rate?

That depends on who ‘you’ are.

When you take out a mortgage or home loan, you can choose to have an interest rate this is fixed, variable, or split (a combination of the two). There is no right or wrong option – it all depends on your circumstances.

Fixed rate home loans

With the fixed rate home loan, the interest rate on your mortgage doesn’t change for an agreed period (usually 1-5 years) – no matter what happens to official interest rates.

Variable rate home loans

With the variable rate home loan, the interest rate on your mortgage can change. If official interest rates go down, your interest rates go down too. However, if the Reserve Bank increases interest rates, your home loan rate will probably rise too.

Split rate home loans

A split rate mortgage combines elements of the fixed rate and variable rate options. e.g. You can have 80% of your home loan at a fixed rate , while the remaining 20% is at an interest rate that varies with the market.

Which home loan interest rate option is best?

Because it is absolutely predictable, the fixed rate home loan can give you greater confidence that you can meet your mortgage repayments regardless of changing economic conditions. The disadvantage is that it generally lacks flexibility.

If official interest rates fall, the variable rate home loan can save you money, but you need to consider the risk that your mortgage payments could rise in the future. If you are contemplating a low introductory or honeymoon rate for an initial period you will save initially, but you must find out what the rate will be when the ‘honeymoon’ is over. The lowest initial interest rate doesn’t always mean the better deal.

The split rate home loan gives you some of the benefits of both fixed rate and variable rate loans. You won’t save as much as a full variable rate loan if interest rates fall, but neither will you be as exposed if interest rates rise.

Home loan interest rates: you need to know more

To understand more about which home loan interest rate option is appropriate for you, talk to us today!

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