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Home Loans – Everything You Need to Know Before Committing

Home Loans – Everything You Need to Know Before Committing

Are you looking to buy your first home? 

Have you reached the point in your life where you’re looking at purchasing your own home? If so, congratulations! As you probably know, this is an extremely exciting time. Unfortunately, all the steps you need to take before actually moving into your dream home can be extremely stressful and overwhelming. One of those steps is hunting and applying for a home loan. That’s why at Jacaranda, we decided to do our research to provide a complete guide to home loans. 

Keep reading to find out the ins and outs of home loans and what you can do to find the best deal. 

What is a home loan?

A home loan, also referred to as a mortgage, is money you borrow from a lender to purchase a property. For many Australians, buying a home is the most expensive financial transaction they will ever make. Therefore, there are several things you should take into consideration before applying for a home loan. Knowing what you are looking for and what to avoid will help you make more informed decisions when it comes to home loans.

Firstly, it’s crucial that you understand the housing market and the causes and effects of rising prices. Additionally, know your personal finances. When you are planning to take out a home loan, generally, the most important factor is your source of income. Ideally, you will want to be employed in a position for at least six months before you apply for a home loan. Lastly, educate yourself, shop around and compare interest rates. 

Jacaranda has gathered some easy tips to give you a better overview of what you need to know before applying.

How to compare home loans to get the best deal

Finding a cheaper home loan with a lower interest rate and helpful features can really help you save some coin. Research areas you’d like to live in and look at properties for sale to get an idea of costs. Then look at your income and expenses to see what you can afford. It’s okay to dream big but you need to be realistic with the budget you’re working with! Having a sufficient amount of savings indicates to lenders that you manage your finances well. so if you consistently deposit money into either time deposits, shares, or other forms of savings accounts, lenders are more likely to approve your application. 

Interest rates with home loans

Before you take out a home loan, you should look into the various types of interest rates and the current Australian interest rates for home loans. For home loans, there are generally said to be two types you could be offered. These are:

Fixed interest rates

A fixed home loan interest rate remains constant throughout the entire course of your loan. There are both pros and cons associated with fixed rates. Fixed rates could make budgeting easier because you know exactly what your repayments will be. Additionally, fewer loan features could cost you less. On the other hand, if you decide to switch loans later (refinance), you may be charged a break fee which can cost you more. As the fixed rates stay the same, you won’t benefit from a drop in interest rates. 

Variable interest rates

Variable interest rates fluctuate instead of remaining constant. These fluctuations are loosely based on where the Reserve Bank of Australia (RBA) sets the cash rate. Banks and lenders usually review their interest rates each month and move them when the RBA moves the cash rate. Variable interest rates offer more features and therefore better flexibility. Compared to fixed rates, it is easier to switch loans later without additional break fees and variable rates usually have lower rates than fixed loans. 

Loan terms 

The loan term is how long you have to pay off the loan and it impacts the size of your mortgage repayments and how much interest you’ll pay. Generally, you should aim to get the shortest loan term you can afford. With a short loan term, you may pay higher repayments, but you could end up paying less interest in the long run. 

Useful features 

Modern-day mortgages seem to have an endless range of features that help you manage your loan and pay it off faster than usual. When doing your research for a suitable home loan, it’s not just the interest rate you should look at. You need to keep features in mind as well. Certain features could ultimately save you thousands in the long run.   

To start with, check if a potential lender is open for extra repayments with no extra costs. This feature is called ‘flexible repayments’ and could help you pay off your loan earlier and save on interest. Another great feature is ‘repayment holiday’ which enables you to pause your repayments. If you get hit by an unexpected expense or unforeseen circumstances, this feature could put your repayments on hold so you can focus on getting on top of your budget again. Lastly, see if the lenders you look to borrow from offer ‘flexible rate options.’ A flexible rate option allows you to take advantage of your current fixed and variable rates. 

Ways to save for a deposit before applying for home loans

Saving up for a home loan deposit can be a challenge for everyone. However, there are ways to cut down on your expenses and save extra cash to make it attainable. With some financial discipline and creative and helpful tips, you can save up for a deposit faster than you think.

First, determine your deposit size and once you have your deposit goal in mind it’s time to get serious about saving. Here are some basic yet essential tips you can follow:

  • Examine your spending. Track your spending and look at your bank statements to find any bad spending habits you can cut down on. This enables you to see where you can cut costs and save money. 
  • Set a budget. Using your spending breakdown, set a realistic budget and make sure to account for every expense. A budget can help you control your spendings and set saving goals each month. 
  • Pay off urgent debts first. Get your debt under control as fast as possible and prioritise high-interest debt first. If you have several credit accounts, consider consolidating your debt to lower the interest rates and reduce clutter. For example, you should prioritize credit card debt over your HECS debt because you don’t pay interest on your HECS. 
  • Spend less than you earn. Always make sure you have more money left in your account at the end of the month. If you have set up your budget according to your expenses and income, this should happen automatically. Additionally, put your money to work while building your deposit with a high-interest savings account.

How Jacaranda Finance could help

Jacaranda Finance offers personal loans up to $10,000 which can be used for any personal expense, such as home improvement or rental bond. So, if you’re on the hunt for a new rental home or just want to increase the value of your home, Jacaranda could help! Use the loan calculator at the top of this page to see how much you can borrow and what your repayments will be! 

Need more information? Visit our contact page or call us at 1300 189 823 to talk to our friendly customer service team!

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Last updated: 19/08/2020, 10:00am

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