The term mortgage is French for ‘death contract’: but fear not. Getting the right home loan can be a portal to freedom rather than a death knell for your financial affairs. Getting a home loan is something that almost every home buyer in Australia will need to do so it pays to do as much research into the territory as possible. Features of home loan such as the size of the loan, method of paying off theloan, interest rate, and other aspects can vary dramatically. When in doubt, consult a professional. And on the net, institutions like ASIC offer useful financial advice for laypeople. Whether you’re buying or building a home there are so many different factors to juggle, from house inspections to builders, but your home loan is one area where inadequate research could end up costing you thousands extra. When picking your home loan, here are some points to consider:
Get the Facts
Ask your lender for a key facts sheet. As of January 2012, If you ask them for one, lenders are required to give you a key facts sheet which displays all the information you need in a set format to make it easier to compare loans and give you more confidence to shop around. If you’re building a home or doing large-scale renovations, you may need a ‘construction loan’. With this kind of loan you withdraw funds as you need them, and you only pay interests on the funds you use.
The most common type of home loan is a standard principle and interest home loan which entails making regular payments off the principle (the original amount borrowed). There are other types available however, some of which have higher levels of risk.
Detect Hidden Fees
Keep an eye out for different kinds of fees. Sometimes being early is not in your best interests: some loans charge an ‘early termination’ fee is you pay off the principle too fast (because the lender doesn’t receive as much interest as they otherwise would have). Most repayments take place over an arranged time, such as thirty years.
Rent to Buy?
Rent to buy schemes can be an effective way for low-income owners to buy a house, but offer you little legal and financial protection. Contact your consumer affairs or fair trading agency to get to grips with what you can expect.
Check Your Budget
If you’re a bit skint, an interest-only loan is an option: the thing to keep in mind with any kind of loan is that nothing in life is free. With an interest-only loan you can make lower payment initially (paying off the interest first before you get to the principal) but you will end up paying more interest overall: sorry guys, don’t get your hopes up. The future is never certain and if house prices start to wobble and the worth of your house drops, you could end up paying off more than your house is worth. Don’t stress yourself, but generally the faster you pay off your home loan the better protected you are from the slings and arrows of outrageous fortune.