Paying off a home loan requires a big commitment. It can take over 30 years until your home loan is completely paid off. Paying off a home loan can also have a drastic effect on your lifestyle. Just ask a Home Loan Broker in Melbourne and they’ll tell you that a home loan can be a financial burden that limits your daily, weekly, or monthly spend.
Before you sign on the dotted line, you should think of how big the commitment of a home loan is. Along the way, you may face several challenges like rising interest rates. There’s also your career to consider. Do you have a stable and reliable income that will pay off your home loan?
In some cases, people purposely choose not to pay it off by using the equity to invest in more properties. While it may seem contradictory for paying off a home loan, using your equity can help you increase your property portfolio and establish assets and income to see you through retirement. This is just one tactic a Home Loan Broker In Melbourne might recommend if you’re looking to grow your property portfolio.
To help you make an informed decision, we’re covering three things you should consider before signing up for a home loan. So read on to get a better understanding of the commitment involved in getting a home loan. When it comes to picking a home loan, don’t be afraid to seek the professional advice of a Home Loan Broker in Melbourne.
Saving for a deposit
Before you start shopping around for a lender, assess your financial situation. How much do you have saved in the bank for a deposit? The size of your deposit will have a massive effect on how much you’ll be able to borrow from the bank. Lenders and banks will also check your credit rating. So make sure any outstanding debts you have are already paid off.
Next up you should make sure your deposit makes up at least 20% of the property purchase price. Most lenders will only commit to letting you borrow 80% of the property value. So if you wanted to purchase a $500,000 home, you would only be able to ask the lender for a $400,000 loan. You would still have to pay the lender a $100,000 deposit for the loan.
In some cases, a lender will allow you to borrow up to 95% of the home’s value. This is a great option if you are unable to save up for a 20% deposit. But there is a catch. If you take out a loan that exceeds your lender’s limit, you will have to pay for lenders mortgage insurance. This insurance protects your lender in case you are unable to pay off the loan.
Lenders mortgage insurance simply requires you to pay a one-off premium upfront. You will have to pay this insurance premium when the home loan is granted to you. Some lenders will allow you to have this insurance premium added to your loan. This enables you to pay your insurance premium over several months.
Ask a local Home Loan Broker in Melbourne for advice on how big your home deposit can be. A Home Loan Broker can assess your current financial situation and recommend the right amount you should be committing for a deposit.
Choosing an interest rate type
An interest rate is the amount of interest you pay for your loan over a set period of time. It’s something that’s an integral part of any home loan. The percentage of the interest rate can also have a drastic effect on how much you’re paying off for your home loan. Your Home Loan Broker in Melbourne will explain interests rates in more detail and explain the options available to you.
It may surprise you to know that there is more than one type of interest rate type to choose from. Once you learn about how each one is different, you can choose one that fits the needs of your situation. Some options may be better than others if you’re the type of person that already has kids to support or various other investment properties to pay off.
A variable rate home loan will feature an interest rate that can vary depending on how the Australian economy performs. It can also be influenced by the monetary policy of the Reserve Bank of Australia (RBA). With a variable interest rate, you take on the risk of paying a higher or lower rate of interest. This rate can change regularly. So you’ll need to be prepared for months where your interest rate is drastically higher or lower than usual.
If you’re someone who’s very strict with budgeting, then you’ll love a fixed rate home loan. It’s a great option for first home buyers with a specific goal in mind when it comes to paying off a home loan. The repayments for this loan will always stay the same. So it’s a lot easier to budget for over a period of several months or years. The best feature about this loan is that you won’t have to worry about interest-rate hikes.
A split loan combines the features of both a fixed rate and variable rate loan. It essentially divides your loan into two parts. One part will have a fixed rate while the other will have a variable rate. Most lenders won’t give you a limit on how you divide up your loan. The way it’s split is up to you.
Home loan features
Your home loan rate isn’t the only feature that you need to consider when it comes to mortgages. There are several other features that can make your transactions with a lender easier and simpler to deal with.
One of the most important features you should look for is the ability to make extra repayments. This will enable you to pay off your loan sooner and decrease your interest charge. This one small feature can help you save thousands of dollars while you pay off your loan.
A redraw facility is another great feature to look out for. It enables you to withdraw funds from the loan you’ve taken out. Savvy homeowners will use this redraw facility to help pay for something like a home renovation or car upgrade. Just be wary that redraw facilities are usually only available in variable-rate home loans.