Introductory Home Loan: Which Mortgage is Right for You?

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Introductory Home Loan Which Mortgage is Right for You Intellichoice Finance

Tips for First Time Home Loan Applications


Are you a first time home buyer? Opting for the right mortgage is the first big step to fulfill your dream of owning a home. It is as essential as looking for the right property and the right location. There are many introductory home loan options when it comes to mortgage products. The question is which one is best?

Note that interest rates and repayment options have an impact on loan products which make each different from the other. There is a broad range of choices when considering the interest rate factor - fixed rate loan, variable loan, and the split loan. When considering the repayment factor, there is the principal and interest repayment structure and the interest only loan structure.

On the other hand, you must also know that there are specialist products offering diverse features and specifications. Here are common first-time-buyer mortgage products that may help you decide which mortgage is right for you.

Introductory Home Loans That's Right for You 


Construction loans


If you are starting from scratch, a construction loan could be ideal for you. This mortgage product will finance the cost of building your home from the ground up. This type of loan has a shorter term and could be extended which depends on the time needed to finish the property.

A construction loan framework is rather not the same as the typical mortgage product. It generally has an interest-only term on the first year prior to assuming a standard principal and interest structure. When the housing development comes to an end, you will need to pay off the mortgage by refinancing or through a separate standard loan.

Construction loans are granted in a set progression as opposed to a lump sum. The lending company generally lets out a specific amount in five different stages. The stages follow the construction process of constructing the foundation through the final touches.

Pros: 
The most significant advantage a borrower can get from using this loan is the chance to enjoy reduced repayments as the structure makes progress.

Cons: 
A higher deposit is required compared to a standard mortgage loan that has a lower required deposit.

Honeymoon loans (introductory rate loan)


A honeymoon loan or the introductory rate loan permits a brief decrease on interest rates over a specific time period, typically between 6 months to one year. The lowered interest rate is acknowledged as an introductory rate. Most loan companies use this to draw in potential home buyers who are initially reluctant to take on a mortgage.

Individuals who opt to get a honeymoon loan can take advantage of an average interest reduction of about 0.5% to 1% based on the SVR or the standard variable rate of the loan company. The introductory interest rate could be a discounted fixed rate or a fixed discount.

A fixed discount is dependent on the movement of SVR where your interest rate remains fixed at a specific amount below the standard rate at a specific time period. A discounted fixed rate is not influenced by the movement of SVR.

Pros:

  • Honeymoon loans give you the chance to substantially cut down your debt through overpayments. 
  • It enables you to build a good financial capability in the early stages of owning a home. With lower interest rates, you can get huge savings.


Cons: 
After the introductory period, you may be locked in an interest rate that may not be so competitive in the current market.

Professional Packages (Pro Packs)


Generally referred to as Pro Packs. This mortgage product was first accessible to specific high paying professions like lawyers, doctors, and engineers. But, most loan companies these days made these available to any individual who fits the minimum income level conditions.

Pro Packs are not mortgage loans but rather it is a bundle of special discounts placed on borrowings just like a home loan. Quite often, loan companies look at the size of your mortgage loan to find out the discount to offer. This generally features discounts on variable rate mortgage loans, maximum of 4 credit cards without the annual fee, reduced offset and savings, and also special discounts on insurance coverages.

Many loan companies call for an annual fee which varies from $300 - $395. In return, you can get to have a variety of fee waivers.

Pro Packs are ideal for those trying to borrow more than $250,000 and those who usually tend to make modifications to their loan. This is also beneficial in case you are looking to increase your cost savings via interest offset features.

Low Doc Loans


Most loan companies regard this loan type as high risk, thus it comes with higher restrictions such as higher interest rates dependent on the supporting documents submitted and type of verification process used. Loan companies may also ask for higher deposits possibly up to 20% of the home purchase price.

This loan share many features when compared to normal home loans. Loan companies may allow fixed interest rates and extra repayments. It may also allow interest-only payments or modified to split loans



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