Purchasing your first home is definitely a complicated procedure. First time home buyers usually face uncertainty on the first steps to take when it comes to home loans. Questions arise as to how to get approved, what grants are available to them, and where should they look to buy.
The home buying process is indeed overwhelming with so many steps and options to take. That is why it is always best to seek investment advice before diving head first into the home buying arena.
You don't want to be lost in a pool of jargons and real estate terms that will get you more confused. Start by knowing the loan options available to you aside from the grant that you may be eligible for.
Let’s look at your options
The First Home Owners Grant (FHOG)
The First Home Owners Grant (FHOG). This is administered and funded by the states and territories of Australia. The grant is provided to first time home buyers of normally up to $7,000. Note that some states have additional or separate grants. So check with your local government for grants available for you.
You can submit an application for the FHOG (This one is from Victoria-but every State and Territory has a version) via your bank once you apply for a home loan. The funds are going to be advanced with your loan at payout.
Investment Advice - Which Home Loan is Best for You?
Variable Home Loans
The standard variable loan is the most common type of loan being offered in Australia. Most first time home buyers took preference on this loan. The interest rate is fixed over a period of time and then fluctuates over the term of your loan. There are two factors that determine your interest rate - the rate set by the Reserve Bank of Australia and the funding costs. Your regular payments will pay some of the interest and the principal will be paid off.
The basic variable loan. This is a variable loan that has fewer features than the standard variable loan but offers a discounted interest rate.
Features:
- It offers flexibility features, like the option to make additional payments, low initial interest rates and redrawing service.
- Interest rate can go lower depending on the market index which means if the interest rate falls, your repayment becomes considerably lower.
- You can repay the loan faster by making extra payments each month.
- Your payments help in your budgeting since you have the option to pay on a weekly or a monthly repayment schedule.
- You have the option to redraw which means having access to the additional amount you have made above the monthly repayments.
Disadvantage:
Repayment may become more. Meaning if the interest rate rises, your monthly repayment also becomes more which can be risky.
Note: basic variable loans doesn’t give you the option to make extra payments to pay off your loans quicker.
Fixed Home Loan
Fixed rate home loans give borrowers the stability of set repayments for a set period, regardless of market fluctuations. At the end of the set period, you have the option to fix the rate again which depends on what your lender offers. You also have the option change to a variable loan.Features:
The best thing about fixed-rate loans is that your interest rate remains the same regardless of the fluctuations in the market index. Therefore, managing your personal finances becomes easy because you know the exact amount you have to pay for repayments.
Disadvantage:
You may not be able to make extra payments towards your loan. This gives you a slim chance of paying off your loan faster. Another disadvantage is that if you exit your loan before the set period finishes, your lender may impose a penalty.
Split Rate home loans
This type of loan is a combination of the variable and fixed home loans. You decide on how much of your loan will assume a fixed interest and how much will assume a variable interest rate.Features:
The split rate home loan option is usually seen as an easy bargain relating to the pros and cons of fluctuating interest rates that make an impact on fixed and variable loans. The split loan type enables you to benefit from the security of a fixed home loan and the flexibility of a variable home loan. They’re especially useful when the market is getting harder to predict.
Disadvantage:
Also, you can make extra repayments on the variable part of your loan. You still face penalties if you decide to exit before the end of your set term.
Interest only home loans
Interest only home loans, as the name implies, pays for interest only for a certain time period. The set period is usually at the first to five years of the loan. At the end of the set period, you revert back to paying interest and principal payments.Features:
During the interest-only period, you get to pay smaller amounts monthly. You have the opportunity to pay off the principal and then redraw when needed.
Disadvantage:
After the interest-only period, your level of debt remains the same and then you get to pay a higher repayment amount.
So contact us on the link below if you are in need of more information
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