You’ve saved up a good amount of money, so you’re ready to buy your first home. Or perhaps you’re in the market to refinance your current home loan and take advantage of some lower interest rates? No matter what your situation, it’s important to understand all of your options before choosing which type of home loan will work best for you. This guide will help you navigate the many different types of home loans available and teach you how to use a home loan calculator to determine which one will best suit your needs.
What are some things to consider before deciding between a fixed or variable rate home loan?
When deciding between a fixed or variable rate home loan, it’s important to consider your view on future interest rates as well as your monthly outgoings. If interest rates in general are going up, then a fixed rate will be more beneficial because your repayments will also increase. Inversely, if interest rates are decreasing then a variable rate could be more suitable because they will decrease with them. Also, look at how stable your finances are and how much regular income you have coming in.
Things you should consider when choosing a home loan lender
- Credit rating
- Rate Of Interest
- Length of term
- Fees
- Type of property
- Loan-to-value ratio
- Credit rating
When choosing a home loan, your credit rating will be one of your biggest considerations. Before applying for a home loan, check your credit score to make sure it’s in good shape – see what’s on your report here. It’s also important to learn how much debt you currently have and set realistic goals about how much you can borrow. Use a home loan calculator to get an idea of how long it might take you to pay off your debts before applying for a new line of credit.
- Rate Of Interest
What Home Loan Is Best For You: There are many factors to consider when choosing a personal loan or a mortgage, but your rate of interest should be a deciding factor. If you aren’t sure which option is best for your unique financial situation, get an idea with a home loan calculator. It will help answer such questions as: How much can I borrow? What does it cost me to borrow that amount? What’s my repayment schedule going to look like over time?
- Length of term
The length of the term refers to how long your loan will last, in months or years. The longer your terms, generally speaking, the lower your monthly repayments will be.
- Fees and Type of property
There are several different types of mortgage options. One common question among potential buyers is what differentiates a 30-year fixed mortgage from a 15-year fixed mortgage. A 30-year fixed mortgage has lower monthly payments but more interest paid overtime, while a 15-year fixed mortgage has higher monthly payments but less interest paid overall. Think about how much money you have saved and how long it will take to save up to buy your dream house when deciding between these two choices.
- Loan-to-value ratio
Equity on your mortgage, more commonly known as LVR (loan-to-value ratio), is one of many different factors that lenders use to determine whether they will offer you a home loan. Because LVR can be such an important variable in determining how much it costs to borrow money, understanding what it means and how it works will help you to choose a home loan that’s right for your needs.
Comparing the different types of monthly repayments available for your home loan.
Some loans are set at a fixed interest rate and monthly repayments stay the same over time, while others vary according to rates that are set each month. With floating-rate home loans, your principal and interest will change each month along with changes in variable mortgage rates. If variable rates decrease, your monthly repayments will be less than they would have been if you had taken out a fixed-rate loan. However, they could also increase if interest rates rise during any given year. A third option is to choose a flexible interest rate on a variable rate loan which allows you to reset your repayments periodically based on prevailing market conditions.
After reading through what types of loans are available, it’s clear that it best depends on your personal circumstances. There’s no one-size-fits-all approach. However, once you have an idea about what you can afford and how much house you can buy based on your income and debt levels, it’s easy to crunch some numbers and determine which type of loan will work best for your situation. For example, if your credit isn’t great or if you’re self-employed or don’t earn a steady income, then an interest-only mortgage could be a good option since it makes repayment more flexible.
