Navigating the complex world of home finance is tough for first home buyers. But unless you’re a member of the Kardashian clan you’re going to have to do it.
So to help you understand home loan finance we’ve made a list of questions that all first home buyers should be asking their mortgage lenders. Here it is.
What will my weekly repayments be?
When entering into a home loan agreement it always pays to find out what your weekly repayments will be.
Be as realistic as possible about whether you can afford the repayments, and leave yourself some wiggle room – because life happens.
Let’s say that you take out a loan for $150,000 at 6.5% over 30 years. Here you’ll be looking at having to make weekly repayments of $237.
To see what you can expect to repay based on your particular circumstances, punch your details into our easy to use loan calculator.
What’s the difference between prequalification and preapproval?
Both of these tasty little morsels show that you’re serious about buying a home. However, it’s important to know the difference between the two.
Getting pre-qualified is the first step towards securing your mortgage. It’s pretty basic: you supply a bank or lender with your macro financial details, including your debt, income and assets. Your lender then evaluates this information and tells you the mortgage amount that you qualify for.
Pre-approval is the next step. When you reach this point you’ll complete an official application. Here you’ll supply the lender with the info they need to perform an extensive check on your history. Once they’ve done this the lender will be able to lock-down (and make official) the specific mortgage amount that you qualify for.
Do you offer any first home buyer discounts/specials?
As a first home buyer you’re a prized commodity for any lender. So, you actually have quite a bit of power. In some cases, if you’re lucky, and if you shop around, lenders will even reduce or discount the application fee for you.
Also, they may even offer you ‘honeymoon’ interest rates to help sweeten the deal.
If mortgage insurance is payable, what will the premium be?
If you come to the table with a deposit of less than 20 per cent your lender will force you to get “Lenders’ Mortgage Insurance”.
Lenders’ Mortgage Insurance is designed to protect the lender in case you can’t make your repayments. Premiums will vary from lender to lender, and will be dependent on how much deposit you’ve got.
Once again, it’s important to compare apples with apples, so do your research.
How long are your interest-only terms?
If your finances aren’t in the best shape you may consider applying for an interest-only loan. These loans allow you to only pay the interest on the balance, leaving the principal balance unchanged. They tend be very popular with property investors, but aren’t necessarily the best idea for all first home buyers.
These loans are a great way to help significantly reduce your fortnightly home loan repayments. As Nila Sweeney from Your Mortgage points out, interest-only loans do come with some short-term benefits. “Let’s say you own a property worth $360,000, with a $300,000 interest only loan at 7%. Your monthly repayments would be just $404 per week. On the other hand, with a standard principal and interest (P & I) loan, the weekly repayment would shoot up to $534.”
The standard term for one of these bad boys is generally five years, but in some instances you may be able to lock one down for up to 10 years.
But be careful with interest-only loans because as Liz Moyes mentions, “Interest-only mortgages have been around for years… (and) with housing prices soaring, interest-only mortgages, with their lower initial monthly payments, have become a common–and in some cases necessary–way for home buyers with modest means to stretch for a bigger home that they might not be able to afford otherwise.”
Can I redraw on my loan?
Most lenders will let you redraw any early or additional repayments you’ve made in the past. Yet it’s important to ask them about it before you sign up with them.
Many institutions will require a period of notice before they give you back your money, or they may even require you to have a certain minimum amount available for redrawing.
Ask if there any restrictions when it comes to redrawing, cause once again, you never know what the future may hold. One month you may be looking to make additional payments towards your home loan, and then on another, you may need to redraw.
What is the best rate you can offer me?
According to most financial experts the best way to compare home loans is to ask for fact sheets. These uber handy documents should provide you with all the basic information that you need.
Key fact sheets will enlighten you when it comes to some of the macro detail of a lender’s loan. Things covered in a fact sheet will include the total amount to be paid back over the life of the loan, repayment amounts and fees and charges.
Any advice and information on our website is general only, and doesn’t take into account your particular circumstances and needs. Before acting on any advice on our website you should assess or seek advice on whether it is appropriate for your needs, financial situation and investment objectives.