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What you need to consider when it comes to your mortgage

05/11/2019
23:00 PM

 

In Australia, buying a home can be daunting – often the market fluctuates, and the reality is that many first-home buyers are apprehensive to take the initial steps in this process. Also, property settlement can often take several weeks or months to clear entirely; hence, making the overall journey a winding road of steps and boxes to tick.

However, once you’re in the environment of your own property, enjoying the space you’ve worked hard to make yours, nothing beats the feeling. The great Australian dream of owning a house is attainable; it’s crucial you make the relevant decisions and take all the right steps towards creating a successful financial outcome.

In this post, we’re highlighting the most important basic information you need to know in relation to your mortgage and application for a home loan.

 

Do you have enough fund for a home loan? 

 

The first step is to consider very carefully whether you’ve saved enough for a home deposit.

If your current financial standings are not looking too bright or the security of your income isn’t stable, then it might not be the right time to take out a mortgage. More importantly, you would need to be aware of your credit rating, so make sure you check how yours is tracking before you take any further steps.

Having considered your financial status details, you would need to take into account whether you have saved up approximately 10 to 20 percent of your property’s value. Ultimately, this is the hardest part of the process – it is even more so if you are a first-home buyer.

A majority of lenders are directed by guidelines to only allow individuals to borrow up to 80 percent of their property’s value. Therefore, you would need to ensure that you have the remaining 20 percent handy to make up the difference.

If you manage to find a lender who will let you borrow more than the typical amount, there is still a catch: exceeding the limit will often mean you have to pay lenders mortgage insurance (LMI). This policy gives your lender coverage if you are unable to adhere to your financial obligations to them in the future.

The general rule of thumb is the higher your deposit is, the lower the LMI amount will be.

 

Know the interest rate types 

 

There are three main types of interest rates in mortgages. These are:

  • Variable
  • Fixed
  • Split

If you are the type of person that is comfortable with taking risks in order to reap the benefits of lower interest rates, then a variable rate is a good suit. Depending on the fluctuations in the Australian economy, the interest rates in a variable loan will differ and will change over the life of your loan.

Fixed-rate loans are perfect for those who want everything planned out in advance and allows home buyers to budget out for the period of their repayments. The amount stays the same and you’re shielded from any sudden hikes in interest.

Finally, split loans allow you to divide your loan into two parts:

  • Fixed interest rate
  • Variable interest rate

This split structure allows home buyers to benefit from the flexibility of extra repayment on the variable component and also enjoy the stability of repayment on the fixed component.

If you’re not sure where to start or what steps to take first, we highly recommend seeking professional advice from an expert.

For a no-obligation discussion, please call Susan Tan at 0413 868 333 or leave us your contact details.