Home Loan
For most of us, a home loan represents a significant financial commitment, so it’s important to find a loan which best suits our individual needs and personal circumstances, but how do you go about choosing one from the hundreds of products offered by the banks, building societies and other lenders out there?
Is a fixed or variable interest rate best for you? Are you having trouble finding a loan because you don’t quite fit the banks’ criteria? Perhaps you’re thinking of building your own home? A professional mortgage broker can help, but you can also find more information right here on our website.
Once you find the right loan, the application process can begin. Every lender is different, but essentially you’ll need to complete an application form and provide certain supporting documents (such as proof of income and identification). The lender will also carry out a credit check and a valuation (when you find a property) before approving the loan.
Use the Home Loans section of this website to find out more.
Contact Calibre Finance Today for further information simply - Click Here
Types of Home Loans
Fixed and Variable Rate Loans
Variable Rates
A Variable Rate Loan means the interest rate charged by your lender may vary throughout the life of the loan according to market conditions and indicators such as the Reserve Bank of Australia’s Cash Rate. In other words, the repayments associated with the loan can also go up or down at any time. Many variable loans now offer a wealth of features such as an offset account or the ability to make extra repayments and redraw funds. Some institutions also offer basic or ‘no-frills’ variable loans with a lower interest rate but fewer features.
Fixed Rates
With a Fixed Rate Loan, the rate stays the same no matter what happens tp market conditions, which means your repayments stay the same. This is great for budgeting, but you need to be aware that fixed rate loans are often less flexible than variable ones, and you may be charged high penalty fees if you decide to 'break' out of your fixed term contract. Most lenders allow you to fix your interest rate for a period of up to 5 years. Once the fixed rate comes to an end, you may have the option to fix again, switch to a variable rate loan or split your loan into part fixed, part variable.
Which is best?
It really depends on your personal circumstances. A borrower who needs flexibility and has the capacity to manage future rate rises may opt for a variable rate loan. Although they will have to pay more if the rate increases, they will also benefit from any rate reductions.
If you are on a tight budget, you may prefer the comfort of a fixed rate knowing that in the future, if lenders increase their variable rates, your rate, and therefore your payment, will remain the same (for as long as you choose to fix it). If lenders reduce their variable rates however, according to market forces, you will be stuck on the higher rate whilst your loan remains locked in the fixed rate term.
Most lenders will allow you to split your loan to include both fixed and variable portions. This way you can combine some safety (only part of your loan will be affected by interest rate movements) and some flexibility (thanks to the variable portion).
Bridging Loans
You’ve just bought a new home, but you need the money from the sale of your old home to complete the purchase. Unfortunately, your old home is taking longer than expected to sell. In simple terms, a bridging loan works by advancing you enough money to buy the new home before you’ve sold the old one. You pay the bridging loan back once the sale of the old property is complete.
A bridging loan can also be useful if you are building a new property. It allows you to stay in your existing home until the new one is finished! Always make sure you have a realistic time frame in mind for bridging, and that you are aware of all the costs. Some bridging loans will require you to make regular payments, which you’ll need to provision for in addition to your existing home loan payments.
Family Equity Loans
If you are looking to purchase a property, but have little or no deposit, you may be able to consider a Family Equity Loan or Equity Guarantee Loan. This option allows certain family members to use the equity in their home as security for your new purchase, allowing you to buy your own property sooner. You may also be able to minimise costs such as Lenders Mortgage Insurance by choosing this type of loan.
Building & Construction Loans
If you’re building a new home or planning major renovations to your existing home, a construction loan is generally the most appropriate funding option. The major difference between a construction loan and a standard home loan is that in the case of a construction loan the loan is usually drawn down in stages. Payments (or draw downs) coincide with the initial purchase of the land followed by a number of key construction stages.
This type of loan is ideal for building, as you only pay interest on the amounts you have drawn down. Before building starts, you will need to pay a deposit to your builder as well as paying a deposit for the land if you are buying land. As work progresses you will need to make payments to the builder.
Construction loans are generally structured for progress payments to be made to the builder during the various stages of construction.
Line Of Credit Loans
A standard home loan involves borrowing a sum of money up front to help you buy your home, which you then pay back over a set period of time, making repayments at regular intervals based on the type of loan that you choose.
A line of credit is more like an overdraft facility with an agreed limit. You can borrow the whole amount at once, or a little at a time. You pay interest only on the funds used, and no principal payments while the loan is in force. This type of loan is useful when you don’t need all the money upfront, ie when carrying out home renovations in gradual stages.
Low Doc Home Loans
The nature of running your own business and the ways in which self-employed individuals manage their affairs make it more difficult for a lender to assess their ability to pay back a loan. It’s much easier to look at an employee’s payslip, knowing that it will be much the same every month! There are options available designed to help self-employed applicants purchase property.
Low doc loans are the most popular of these. Provided you have a sufficient deposit, normally 20% or more, some lenders allow self-employed applicants to declare their income in writing. They will also ask to see limited financial information such as recent business bank statements or BAS statements.
These loans are referred to as ‘low doc’ due to the minimum amount of financial documentation often required compared to applying for a traditional ‘full doc’ loan. Lo doc loans often attract higher interest rates than standard loans, but loan features (such as redraw and lines of credit) are often still available, depending on the lender.
Split Home Loans
Most lenders will allow you to split your loan into part fixed rate, part variable rate. This way you can combine some security (only part of your loan will be affected by interest rate movements) and some flexibility (thanks to the variable portion).
Although it will depend on the lender and the type of product you choose, most lenders will charge you in some way for splitting your loan. Some may charge a one-off administration fee, while others charge an annual package fee which covers any changes you make to your loan, such as splits and any future top-ups
Contact Calibre Finance Today for further information simply - Click Here |
