Getting a mortgage is a huge life step – you’re making a big purchase and you’re probably feeling a little overwhelmed alongside all the excitement. Finding the best mortgage loan for you is a great way to make things run smoothly and efficiently.
In the last decade there has been an explosion in the number of different types of home loans to choose from. Don’t panic – understanding a little bit about the options available will help you feel more confident in figuring out which mortgage loan will suit you best.
What are the different types of mortgage loan?
Take a bit of time to think about your circumstances and what you need from your mortgage loan – whether that’s the lowest monthly repayment possible or stability, so that you can budget for exact outgoings each month.
Understanding the different types of mortgage loan takes a bit of time but will be more than worth it long term. Here are a few examples of the different types of mortgage loans available:
Variable Rate Loans
This is often one of the most popular types of mortgage loans for people in Australia. These loans are affected by cash and interest rates therefore payments can rise and fall accordingly.
If you are relatively flexible in your finances and want to take advantage of benefits such as extra repayment or redraw facilities, the variable rate loan could be a good option for you.
Fixed Rate Loans
This type of loan is a better option for those needing stability and to know the exact figure that will leave their bank account with each repayment. The home loan interest rate is secured for the set period (usually between 1-5 years) meaning that you don’t have to think about any changes in interest or amounts.
Interest Only Loans
For property investors the interest only loan can be a good option – especially if they’re hoping to quickly sell the property on and make a profit.
Different to traditional home loans, an interest only loan simply requires you to pay for the interest – not the principal.
Interest only loans are also popular with first time buyers or those who don’t have a high monthly income as they are paying out less per month. It’s important to remember though that usually the arrangement will be for a limited time period, so the borrower will need to be able to pay back full repayments after that.
This is an option that requires you to have a good, reliable family member or close friend who is willing to act as a guarantor for you if you’re looking to borrow a high percentage (usually at least 80%) of the purchase price of your home.
Many first-time buyers use this option if their parents are able to help, however it’s really important that both sides of the agreement are happy and not stretched financially.
Finding the right mortgage loan for you
The most important thing is to take your time and research properly. Compare the market and ask for expert advice if ever you’re feeling uncertain or as though you don’t understand exactly what each mortgage loan means for you.
Think about your current status – don’t get a mortgage loan simply because someone recommends it, or you know someone who has got one. The best option for you is going to depend heavily on your financial status, your personal circumstances and your future plans for the property.
Find the right lender for you. Whatever your circumstances, there are lenders out there who will be able to help you to find the right mortgage loan for you. The right lender will listen carefully to your needs and patiently guide you through the mortgage loan process.