Taking out a loan to buy a home will probably be the biggest financial decision and commitment you will make in your life.
Loans for Home
Loans generally take decades to pay off and require a consistent means of payment. If you are going to be involved with such a long term financial commitment you should enter it armed with as much knowledge as possible to ensure that you enter into a Home Loan with the best possible terms you can.
We will look at some of the key things you need to know in this guide such as lending criteria and some general knowledge about loans. While a loan may be a big commitment, they are common and millions of people happily take them out and manage them well. At the end you will have your own home to live in for free and it sure beats renting, which is basically paying for the loan on someone else’s house for them. Lets take a look at home loans Australia.
Loan Lenders Australia Criteria
Lenders may take a case by case basis when reviewing an application for a home loan but here are a few general points to consider before applying. Lenders are looking for evidence of an applicant’s stable work situation and history. They need to be sure that the income level that an applicant has is secure and isn’t likely to dry up in the near future causing missed repayments. In general, lenders will look at the last two years income history to base a decision on.
Equity and deposits are also taken into account. Equity is the amount of the loan and how much the home is worth. Too high a percent can put a lender off. Lenders will also take into account an applicant’s payment history – to help gauge how serviceable the loan is likely to be, and the security of the property. That is, the bank or lender will possess the titles to your home until it is paid off.
Types of Home Loans and Interest Rates Australia
Low Deposit Home Loans:
Most lenders require 20% as a deposit, others will lower this but may incur additional fees, or insurance.
Usually a family member acts as a guarantor on a loan to avoid lenders mortgage insurance as part of their home is used as security.
Line of Credit Loan:
A revolving loan that your salary gets paid into and offers a line of credit for withdrawals.
Principal/Interest: Repayments include interest and part of the original amount of the loan.
Variable Interest: The interest rate of the loan changes with outside factors such as the Reserve Bank Cash Rate.
Fixed Interest: The Interest rate is set in stone for a set period of time.
Interest Only: The borrower only pays for the interest on the loan for a set period of time.