So, after that coveted college degree followed by years of putting in hard work at your dream job, you are finally at one of the most important decisions of your life – to buy your first house. Now, that does mean taking up a home/residential loan, assuming we all can’t be saving 100% of the loan amount for our first home, right? Don’t let the marketing jargon bog you down while you go looking for the best home loan for your dream home.
We have decoded and collated a quick good-to-know list for first home buyers and even for property investors, to help you settle for the best choice.
1. Save for your deposit
The math is simple. The more you save, the less you borrow. Ideally, you need to save at least 20% of the purchase price. So if you end up borrowing more than 80% of the purchase price, you need to pay Lender’s Mortgage Insurance (LMI). LMI is to cover the lender in case you default on the payment.
2. First Home Owner Grant scheme
Even though it is extremely challenging to get this grant with strict eligibility criteria, but if as a first home owner, you meet all those checklist, you may get one. However, the size of the grant varies state to state. Do check out for your state home loans guidelines for that.
3. Interest rate – Now, interest rate has several interesting aspects to it.
A) For an investor buyer – Interest rates may be higher if the lender knows you are not looking to stay there.
B) Fixed and Variable interest rates – While a fixed rate of interest will give you a sense of how much exactly you have to dispense with month-on-month, a variable interest rate gives you the benefit of lowered payments in case interest rates fall. Both have pros and cons, you need to weigh in everything before you opt for either of the two.
C) Split rate – Alternatively, you can also decide a part of your loan at a fixed rate of interest and the rest at variable. This gives you the best of both, obviously with disadvantages for either of the case.
D) Repayment – You can opt for weekly, fortnightly and monthly payouts of the mortgage. Do keep in mind that banks or lenders calculate interest on a daily basis. So opt for the payout that you don’t end up paying more over the term of the loan.
4. Frills and Features
Any additional feature that is being offered in the bouquet may also cost more in terms of extra fees or payments. That being said, most loans offer a variety of features that you can use to your benefit.
A) Additional repayment – You can pay any additional amount you may have got (hello, family inheritance or a lottery!) towards setting off your loan figure.
B) Refinancing – Home loan market is extremely competitive so expect variations in interest rates, different features being offered etc. You can opt to switch your mortgage to another lender or to some other product with the same lender. Just stay updated with the interest rates.
C) Offset account – A transaction account attached to your loan account, the balance of which you can use to set off the outstanding loan amount.
5. Fees and duty
Be very mindful and provide for all the fees, charges and stamp duty that may come up while on your way to the home loan.
A) Stamp duty – As a first time home owner, your stamp duty may stand to be exempted.
B)Lenders Mortgage Insurance (LMI) – Like discussed in the first point, you have to factor in this cost in case you have saved less than 20% of the loan amount.
Most of the one-off fees and costs can also be negotiated upon with the lender, considering the highly competitive nature of the mortgage market. Make sure you bargain hard!
We hope this list gave you enough roadmap on taking that mortgage for your first home. Hit us up in case you have any doubts or queries. We’ll be happy to resolve those for you.