First home buyers Pt 2: loan types and pre-approvals
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One of the biggest considerations when buying your first home is your home loan. It can feel daunting, as there are a number of options and things to consider, but with a little knowledge you’ll be able to make an informed decision that is right for your situation.
Choose your loan type
This is where expert advice comes in handy. There are different loans available to first home buyers that will suit various budgets, lifestyles and appetites for risk. Your bank or broker may talk through options such as:
- Fixed interest rate home loans: These loans allow you to lock in your interest rate for a period usually up to five years, giving you certainty around what your repayments will be each month. These loans are unimpacted by changing market conditions – though keep in mind, you’ll be limited by how much you can pay in additional payments.
- Variable home loans: In these loans, your interest rate can fluctuate, varying up and down at any time. Whilst you may have less certainty around your repayments, the biggest advantage of variable loans is flexibility. Whilst you must meet your minimum monthly repayment, you can usually pay more money each month towards your mortgage – enabling you to pay off your home loan faster.
- Principal and interest VS interest only: Principal and interest loans mean you’re paying the interest on your home loan as well as chipping away at what you owe on your property too. On the other hand, with interest only loans, you’re exclusively paying the interest on your mortgage. Interest only loans are designed for short-term needs, and once the limited timeframe is up, you’ll revert to paying principal and interest.
No matter which type of home loan you choose, it’s a good idea to shop around and compare rates and conditions. When looking at home loan advertising, keep an eye on the comparison rate, which will give you a more holistic view of the cost of the loan as it includes fees.
Once you’ve selected who you’ll get your home loan with, a good step is to obtain pre-approval.
A loan pre-approval means that a lender has agreed, in principle, on the amount of money they’ll lend you towards buying a home. It’s not the same as full or final approval, but it gives you greater certainty around what you can borrow, helping you to set a budget.
Learn about government support and schemes
There are some great government incentives to support first home buyers to achieve their dreams. Check out the links below to the First Home Owner Grant, HomeBuilder Grant and the First Home Loan Deposit scheme to see if you’re eligible to participate:
FOOTER: IMPORTANT INFORMATION
The information contained in this article is intended to be of a general nature only. It has been prepared without taking into account any person’s objectives, financial situation or needs. Before acting on this information, Fairhaven Homes recommends that you consider whether it is appropriate for your circumstances and that you seek independent legal, financial, and taxation advice before acting on any information in this article.