Buying a home is the biggest purchase we will ever make in our lifetime, and before we do, there is a lot to consider. Make sure you have the best home loan with all the features that you will need, like offset account, redraw facility, NetBank, extra repayments, etc. You need to check with your mortgage broker that your home loan repayment is within your budget without impacting your lifestyle. You can also check out your borrowing capacity on our home loan borrowing calculator section, which will also show you home loan repayment amounts. The entirety of our home loan calculators can also come in handy!
Types of Home Loan
Before you begin your home loan journey, the most important thing you need to learn about is the types. There are various types of home loans designed for all types of needs. All different types have various features that appeal to different borrowers. Try using our home loan comparison calculator to compare different home loans. You need to make sure you select the home loan that is right for your circumstances. Here are some of them explained:
No Deposit Home Loans
No deposit home loans are perfect for homeowners who do not have the required 20% deposit saved but still wish to take on a home loan for their dream property. You might wonder if that is even possible; it is! The real question is, if you do not provide the necessary security to claim a home loan, how does the lender make sure you do not default on your repayments? There are various options to keep the home loan secured. You can use a guarantor to guarantee your loan, use deposit bonds or equity from any other property you own, or gifts as a deposit, as long as you have the papers to confirm it is a gift and not lent, you’re free to use it as the deposit amount.
Investment Loan
Investment loans are designed to help with the purchase of investment properties solely. Investment loans function very similarly to owner-occupier home loans or any other standard home loans, for that matter. Only the rates and features are different. When you’re looking for the right investment loan, you need to consider these major factors: interest rates, features and loan types.
You ought to make sure that your investment loan has a competitive interest rate compared to that of all others in the market. The home loan features you choose also make a massive difference in the return you get from your investment; therefore, you need to choose wisely. It’s important to opt for a product type that aligns best with your financial goals, between fixed rate, variable rate or interest-only, the choice is entirely yours, so choose wisely.
Try using our introductory rate calculator to understand the true cost of your loan over time!
Refinance Loan
A refinance loan or loan refinancing means replacing your existing home loan with another. Timing is very important when it comes to home loan refinance; you need to make sure you’re refinancing for the right reasons and at the right time.
Refinancing a mortgage is typically done to achieve lower interest rates and improved loan terms. Here, getting improved loan terms could mean lower monthly repayments or adjustments in the length of the loan. When you choose to refinance during a drop in interest rates in the market, there are high chances you’ll land yourself a loan that can help you save thousands.
Low Doc Home Loans
A low-doc home loan is best for borrowers who may find it difficult to provide the paperwork needed for a traditional loan. You could be self-employed, a freelancer or someone without a traditional earning source; low doc home loans can help you secure the perfect home loan. By using different sources of documentation, you can consider your suitability for a loan; the flexibility comes in handy.
Things to consider before you take out a home loan
Anyone who is seriously considering purchasing a home needs to consider three basic things before they take out a home loan.
The first one is, have you saved enough for the deposit? You need to check whether or not you’ve saved enough for a deposit before you start approaching property lenders. In addition to asking whether or not you have enough savings, you need to consider how stable your income stream is and what your credit rating is.
While some home buyers can purchase property with a deposit lower than 20 percent it is still worth factoring in stamp duty and any other associated costs, such as property valuation, builder’s report and conveyancing fees. These fees need to be paid up front. In some cases, you may also be eligible for a no-deposit home loan, which allows you to enter the property market sooner without saving a full deposit.
If paying those costs will place your deposit under 20 percent, you will be required to pay Lenders Mortgage Insurance, which protects the lender in case you cannot meet your loan repayment obligations.
Which Home Loan & what home loan features will I need?
With interest rates rising every month since May, you need to think about whether you want to choose a variable, fixed or split mortgage. They all come with advantages and disadvantages. If you opt for a variable rate, then you could see your mortgage repayments decrease. However, on the flipside, you run the risk of the repayments increasing as rates rise.
A fixed rate is best when you want security over your repayments, but be aware that choosing this option means that if rates do drop, you will miss out.
Finally, what type of mortgage features do you want? Do you want a basic mortgage, or do you want an offset account? Are you allowed to make extra repayments without incurring penalties? If you’re unsure what type of mortgage will best meet your needs, then get in touch with us as our brokers would be happy to explain the features to you so you can make an informed decision.
What is your income?
After you’ve decided what type of mortgage you want, you need to consider your income. Is your income likely to increase? If so, by how much? Before you even think about entering your income into a mortgage calculator, which assesses how much you can borrow based on your current income and interest rates. You need to ask yourself three questions:
- What is your annual income? Do you have multiple sources of income? Multiple sources of income from employment, investments or gifts will give you greater stability to make repayments than if you only had one source of income.
- What are your monthly expenses? What are your current outgoings, and what will your future expenses be after you’ve purchased a home? Expenses include regular financial commitments like debt repayments, insurance, general living expenses and of course, your anticipated mortgage repayments.
- What are the loan details? The most important information that you need to enter into the mortgage calculator includes your income, the interest rate and the loan term. Bear in mind that the mortgage calculator will assess your borrowing capacity based on a fixed interest rate over the term of the loan, whether it’s 20, 25 or 30 years.
How do interest rates affect your borrowing power?
As interest rates rise, your borrowing capacity decreases. When lenders calculate how much to lend you, they factor in your income, assets, expenses, debts, credit history, the deposit size, type of loan and the value of the property. While assessing your suitability for a home loan, they include a buffer of 3 percent, so if interest rates are currently 3 percent they will calculate your repayment capacity based on 6 per cent. If you can’t afford to make repayments using the serviceability buffer rate, then you won’t be eligible for a loan. Ultimately, that means that the higher the buffer rate, the less you can borrow, so you will be limited in your property choices.
How can you increase your borrowing power?
While it’s expected that property prices will drop as a result of higher interest rates, it’s still best to plan for a situation where they do not drop. There are things that you can do to increase your borrowing power.
- Know your limits. It is best to borrow what you know you can definitely repay rather than asking to borrow more. If you ask for more, the loan will be rejected, or you will end up with a mortgage that you can’t service.
- Check your credit score before you apply. If your credit score is too low, then take steps to improve it. If it’s correct, then work on maintaining it. If you identify any errors, then talk to one of our brokers to see how we can help.
- Don’t switch jobs. Lenders like to see employment stability, as the risk is much lower for them because your income is stable.
- Review your spending habits. If you can cut back on any expenditure, it is best to do so a few months before you apply for a mortgage.
- Save as much as you can. The higher the deposit, the lower the risk in the eyes of the lender, which means that your repayments will be lower.
- Reduce your debts. If you have bad debts like credit cards, then pay them off as fast as you can or reduce their limits.
- Consolidate your debts. Fewer repayments will make managing your money much easier than if you have a lot of outgoings.
Most importantly, adjust your expectations. There is no point in looking for a property in an area that you know you can’t afford. We have a loan repayment calculator that you can enter all your information in so you can work out exactly how much you can borrow and what your expected repayments will be.
To learn more, check out Nice Loans, your trusted mortgage broker based in Brisbane! Book your consultation now to get in touch with professionals who can guide you!
