Home Loans – Things you should know
Deciding to apply for a home loan can be a daunting task and it may be the biggest financial decision you’ll make. With the right preparation, a realistic understanding of your financial position and some professional guidance from a good mortgage broker, you can position yourself as an attractive home loan customer. We’ve put this quick guide together to help make the process a bit easier.
Types of Loan
There are a variety of home loans available in Australia that suit different people at different stages in their life. A mortgage broker can help you to make the best decision on which home loan will suit you and your circumstances best.
A Variable loan is a loan that is subject to interest rate fluctuations. Whenever your bank increases or decreases interest rates, you will end up either paying more or less for your loan, depending on what the bank has decided to do.
A Fixed rate home loan allows you to lock in a specific interest rate over a set period of time, generally between one and five years. This loan is popular among many borrowers who want to ensure that their repayments don’t rise. The main risk with this is that if variable rates fall, you will be locked in at a higher interest rate on your home loan. The cost of breaking a fixed rate loan contract can be significant and there can also be financial penalties for making additional payments.
You can take out a mortgage with one portion of the loan at a variable interest rate and the other fixed at a fixed interest rate. In many ways this type of home loan offers the best of both worlds, you have the flexibility to repay more on the variable loan and reduce risk through the fixed loan.
Bridging loans are designed as short-term financing options for borrowers who need funding to buy a new residence before selling their existing home. The interest rates on these types of home loans are higher than the standard variable interest rate.
Think about your financial position
It is important to conduct an honest self-assessment of your financial position. Try creating a list of your income, expenses, assets and liabilities. Make sure to include your everyday living expenses and commitments including that morning takeaway coffee. Your home loan repayments should equate to no more than a third of your income, give or take your expenses.
Once you’ve done that, consider all the extra costs of buying a home and getting a loan, such as legal fees, lender establishment fees, stamp duty and so on. You should also want to look into the availability of any government concessions or grants that may help reduce the overall cost.
Your mortgage broker can help you to assess your financial position and that of any co-borrowers to ensure the amount you wish to borrow is feasible in your circumstances.
What you’ll need to apply
To get an idea of how much you can borrow for your home loan and therefore what you can afford to buy, you will need to give your lender a detailed picture of your finances. This will include things like your income and assets, your financial obligations such as existing debts and living expenses, ongoing bills and other expenses including entertainment, food and car expenses etc.
You will need to provide evidence Income:
- Pay slips plus current PAYG Summary
- Tax Returns( 2 years ) plus Notice of Assessments for Self Employed
- Loan statements for existing loans.
- Credit card statements and Personal Loan Statement confirming limits and balances
- Drivers Licence
- Birth Certificate and Medicare Card
If you already stick to a budget and have a regular savings history, you may want to provide bank statements to demonstrate this.
Talk with a broker
Make an appointment to speak to a mortgage broker. Most will provide a list of everything you will need to bring.
A good mortgage broker can help to position you as an attractive home loan borrower to lenders, while finding the right home loan to suit your needs.
Need some Advice about loans?
A mortgage broker can help you find the right loan and secure the finance that’s most suitable for you. It will also ensure you avoid making mistakes.
Any questions you may have regarding loans, contact Annette Tothill on 0420 973 551.