First Home Buyers: Which Mortgage is Right For You?
For first time home buyers choosing the right mortgage can be daunting. Remember, a home loan consists of more than just the interest rate. You must also consider the features available – for example, some home loans charge you for early repayments – and consider also any ongoing fees on the mortgage.
Types of First Time Home Loans:
Standard Variable Rate
This type of loan is a flexible product that will usually allow you to take full advantage of benefits such as flexible repayments and redraw facilities. Remaining one of Australia’s most popular home loans, the interest rate is usually a little higher than a basic loan due to the extra features loaded onto the loan. The home loan rate is tracked against the official interest rate set by the Reserve Bank of Australia. The home loan rate will often be a little higher than the RBA rate, but as the RBA lowers or raises the official rates, mortgage rates generally come down or go up. So, this type of loan obviously carries some risk, if rate go up, but it also offers savings should the rate come down. But if you are a first time home buyer looking for flexible features and the ability to make extra repayments then the standard variable rate home loan may be just what you are looking for.
Basic Variable Rate
Basic the key word here. If you really do not need added features but still want flexibility in your mortgage then the basic variable rate home loan may be for you. The basic variable rate home loan has a lower interest rate than a standard rate loan, because it does not offer many features, which is how the rate remains lower. Again, the rate is tracked against the RBA rate and can go up or down accordingly, but will be lower than the standard variable loan. If you are looking for a low rate, and do not need all the extras, the basic variable loan is a great option.
Fixed Rate
For home owners who want security you could go for a fixed rate home loan. The rate is fixed for a set term - usually between one and five years, and the rate will remain the same regardless of whether the RBA changes the official rate. If rates are looking likely to rise considerably, this could be your saviour.
If you fix your rate for three years, and after one year standard variable rates fall, you will not get any savings. But, on the flip side, if rates rise and you have fixed your rate you are safe for term of the fixed loan. The rate for this loan will be comparable to the current variable rate, although sometimes depending upon the rate cycle fixed rates can be lower than variable rates, so you could save money as well as locking in security for the next few years.
Split Rate Home Loans
Not sure what’s going to happen with interest rates? Want security and flexibility with your first home? Think about a split rate home loan. You can fix a percentage of the loan, maybe 50%, leaving the remaining half of the loan variable. This means that if rates change, only 50% of your home loan is affected. This allows you to have security over part of the loan, and an ability to be flexible with rates with the other part of the loan. The split is up to you and the lender to negotiate what works for both parties. After the current terms end, the whole 100% of the loan reverts to the current variable rate unless you renegotiate to another split rate loan. Your mortgage broker should be able to help you split your home loan to the best possible advantage.
Introductory Rate
The “honeymoon” home loan tempts many first home buyers. The initial time period– usually between six months to one year – puts you on a very low interest rate, sometimes as much as 1% lower than other home loans. This gives new home owners a chance to adjust, get uesd to having a mortgage and to easily afford repayments. But, the low rate will not last forever, once this period is up, the rate will revert to a variable rate. Check what the rate will revert to once the honeymoon period is over and factor this in when making your decision.
No Deposit Home Loan
Haven't saved a deposit for a home? No-deposit home loans in the past have offered borrowers a chance to purchase a property without the need to put down a deposit. Instead, you borrow the full amount of the property price. Repayments will be higher because you have borrowed more. Interest will also be higher as you are borrowing more. Lenders Mortgage Insurance (LMI) will also be an extra fee for you when you borrow more than 80% of the property price.
However, no lenders are offering this product since the start of the global financial crisis, so get savings that deposit now!
Want to get approved for finance now? If you are ready to buy your first home and would like assistance with finding the right home loan, call us today on  .
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First home buyers need to be extra careful when it comes to a first mortgage. .
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