The Ins and Outs of choosing the Right Mortgage
If you’re a first home buyer, the chances are you don’t know all of the ins and outs about your mortgage. It’s a complicated procedure and the variety of choices means it’s hard to know which to pick. Choosing the right mortgage is extremely important too, as it will likely determine your budget for anywhere between 10 and 30 years. Therefore, you must take your time in getting yourself well-versed with different mortgage plans to protect your financial health. If you are time challenged take a little time out of your schedule to find a professional mortgage broker. If you are in Australia try Master Mortgage Broker Sydney.
1) Fixed Rate Mortgage
Fixed terms typically range from 1-5 years, however, there are longer ones available, often at higher rates. Your interest rates will never changed with a fixed rate loan. These are popular because of the security they offer – no matter what happens, your interest rates will remain the same. This can help people to plan their budgets better as they know exactly how much their mortgage is costing.
In the case of rates dropping, you won’t be able to switch to a fixed rate mortgage unless applying to refinance your loan. This is generally advised to be avoided as its a big gamble to make for some, potentially, minor long-term savings.
2) Variable Rate Mortgages
With a variable rate mortgage, your interest rate will vary along with the interest rate of the Reserve Bank of Australia. Naturally, this can be a good thing or a bad thing. If interest rates are low, you’ll be paying less, but if they happen to rise, your mortgage will increase.
Opting for a variable rate mortgage is a gamble unless you have the funds to handle a rise in interest rates. These are popular with those prepared to risk interest rates low, but not preferable for those who want more security with their mortgage.
3) Low Deposit
First home buyers tend to favour a low deposit loan. This is because it’s easier to get a mortgage this way. Those who have limited savings but high incomes tend to opt for these as they can pay them off quickly, and you may only require to deposit 5% of the house’s price.
4) Construction Loans
Construction loans are good for those who want a home and land package. They work by paying the builder in instalments as they build the home, which in turn brings the mortgage down. This is a very affordable way of buying a home thanks to the interest being based on the balance of the loan.
5) Honeymoon or Introductory Rate Mortgage Loans
Perfect for first home buyers, honeymoon loans give the buyer a lower interest rate for the first 12 to 36 months to help them get started. Once the honeymoon phase is over, you pay the standard variable rate. While these are great plans in the short-term, due to the variable rate, they can potentially prove more expensive in the long run.
6) Low Doc Loans
Self-employed people regularly go for low doc loans, and they are ideal for people with a good credit history. Since the lender is at risk, interest rates can be higher, but in spite of that, low doc loans are still popular.
7) Non Genuine Savings
Perhaps you aren’t in a position to buy a home with your own savings, but you still have the money to do so. You can still get on the property ladder with non genuine savings. Non genuine savings include inheritances, tax refunds, gifts, proceeds from asset sales, compensation, First Home Owner Grants (FHOG), borrowed deposits, fast cash loans and more. If you are in this situation, there are still lenders out there you will give you a home loan.
If the money for your deposit is coming from any of the aforementioned sources, the lender will class your deposit as coming from non genuine savings. You don’t have to be concerned, if you are in the non genuine savings camp, you will still be able to get a home loan.
The seven mortgage plans mentioned above are just some of the plans on offer to Australian first home buyers. When taking out a home loan, always be sure to read the contracts fully so that you are aware of exactly what loan repayments are required from you.
Before jumping in and picking out a mortgage loan, you should seek out the advice of a professional mortgage broker. These will answer any questions you might have, and explain things to you in simple, easy-to-understand terms.