Australian Home Loans
What are Home Loans
Almost everyone will require a home loan if they are looking to buy a house of their own. In fact providing that you can afford it, getting a home loan is one of the best investment decisions that you can make, and is commonly referred to as the 'Great Australian Dream'. This is because house prices in Australia tend to go up over time and very rarely go down in value.
This stability in the Austrlaian housing market is what makes houses an extremely safe prospect and hence they are classified as very low risk by home loan lenders. It is because of this that home loans in Austrlaia provide you with the lowest interest rates of any type of loan in the marketplace.
So what is a home loan? Well it is where you borrow a percentage of the cost of a house from a lender and then agree to pay this amount back along with interest over a set number of years (usually 25 or 30 years). The bank of home loan lender will then take out a mortgage over the house as security for the loan and should you have trouble meeting the repayments they will then recover their costs by selling the house.
Home Loan Types
In the past there were only a few different types of home loans available, but nowadays you can get any number of different types of home loans. In fact all of the banks, credit unions and building societies in Australia will have a range of home loans available for you to choose from. Some of these home loan types will include :
- Fixed Home Loans - This is where the interest rate is actually fixed for a specific number of years and cannot change, so you know exactly what your mortgage costs will be.
- Variable Home Loans - This is where the interest rate is subject to change, either due to changes in the cash rate that is set by the Reserve Bank of Australia, or sometimes independently by the lender itself.
- Home Equity Loans - This is where you are provided a sum of borrowed money secured against the equity that you have built up in your home.
- Interest Only Home Loans - With this type of loan you repay interest that is calculated only on the principal, thus making the repayments lower than your normal principal and interest loan.
- Investment Home Loans - This loan type is used for purchasing an investment property, rather than the home that you actually live in.
- Line Of Credit Loans - These loans are similar to home equity loans in that you are borrowing money against equity that you have in your home, but with this type of loan you withdraw the money using a type of credit card as and when you need, up to a specified credit limit.
- Mortgage Offset Account - This is a loan where a transaction account and the home loan are effectively combined so that your salary and other income can reduce the amount of interest that you are charged each month.
- Lo Doc Home Loans - With this type of loan you will require very little or no documentation to get approval and is ideally suited for self employed borrowers.
- Construction Loan - This is where a loan is provided to help you to pay installments to a builder in order for them to build or construct a home.
Each of the different home loan types has its own specific uses as well as advantages and disadvantages. So for more detailed information about each specific type of home loan click on the link above.
Who are Home Loans Suitable For
Home Loans are suitable for anyone who wants to buy a house and has a good credit history, regular steady income and either equity in an existing property or a deposit saved up in the bank. Home loans are pretty safe for the lending institution because they use the house as security for the loan and normally houses will increase in value over time. This means that if you fail to make the interest repayments to the bank then they feel safe in the knowledge that they can simply sell the house in order to get their money back.
With property prices being relatively high this means that home loans are generally fairly large in size, and as such need to be paid back over a long period of time (generally 25 - 30 years). For this reason the eligibility criteria at some bank lenders can be pretty rigorous and you may need to provide lots of financuial documentation in order to get one. Having said that some lending institutions are less strict than others when it comes to getting a home loan. So as long as you have been working for a while you should not get worried if you get rejected by one lender. Simply shop around until you find a home loan lender that is willing to accept your business.
Home Loan Advice and Tips
- Before you purchase a house you need to do your home loan calculations and figure out how much you can borrow. At this point you should be conservative and factor in at least 3 or 4 interest rate rises. It is important that you don't overextend yourself when working out how much you can afford to spend on your new home, otherwise you may find yourself in trouble later on.
- If you are looking for a home loan that has a 100% offset account attached then be aware that there is an alternative that is just as good and often much cheaper. What you should look for is an Australian home loan that has a free unlimited redraw facility. Then transfer most of your money from your savings account into the loan account using online banking. This way you will significantly reduce the amount of interest that you are charged each month without having to pay extra for a 100% mortgage offset account.
- As soon as you sign the contract on your new home make sure that you organize home insurance for the property, in case something unforseen happens to the house before you settle on it. Also ensure that your home insurance policy has sufficient cover to completely replace the house if required.
- You should try to save up as large a deposit as possible and then work out the minimum amount that you actually need to borrow. By doing this you will save lots of money on interest repayments over the course of the loan.
- The best home loan advice is to shop around and approach a range of lenders when looking for the best home loan deal. If you don't have the time or confidence to do this yourself then employ the services of a qualified mortgage broker in order to find the most suitable home loan for your needs.
- If you decide to use a mortgage broker then ensure that they are registered with the Mortgage & Finance Association of Australia (MFAA). Also make sure that they have your best interests at heart and are recommending loans that firstly suit your needs and secondly pay them the same amount of commission as every other lender.
- You should make extra repayments into your home loan whenever you can. Even if you put in just a little bit each month then this will create significant savings to you over the term of the loan.
- If you get the option choose either weekly or fortnightly repayments. By doing this you will effectively end up making 13 monthly payments throughout the year without even noticing it financially. This little repayment tip will save you $1000,s and years off the life of the loan.
- If you get a pay rise or some other sort of bonus income then consider putting all or at the very least some of it into the home loan.
- Another home loan tip is to keep your repayments the same when the interest rate on your home loan goes down.
If there is some loan terminology or abbreviations that you are unsure about the meaning off then you can check out the home loan definitions page, which has a detailed explaination about some of the more confusing aspects of getting a home loan.