You’ve saved hard, have been researching the market, and you’re finally ready to make an offer on a house you love! Along with that excitement comes the anxiety of having to apply for a mortgage.
While many of us know what a mortgage is, the ins and outs can often seem a tad elusive. But knowing the basics of a home loan and how to apply can make all the difference.
Here’s a simple breakdown of the basics.
Choosing a loan
While you may have been a long-term customer of a particular bank, it does pay to shop around when you are researching home loans. Working with a mortgage broker can save a lot of time and effort here.
Mortgage brokers must present a variety of loans and lenders by law and will recommend which of those options work best for your specific circumstances. This can be a great way to make sure you are getting the best deal, which in the long run can save you tens of thousands of dollars.
Banks will lend up to 80% of property value, or potentially up to 95% with the inclusion of Lenders Mortgage Insurance. Different lenders have different policies on this depending on your circumstances.
Do you want to be able to make extra payments without any penalties? Or do you want to use any savings you build up to reduce your interest? Additional features such as offset accounts, redraw facilities and additional payment limits may make a difference to which lender is right for you.
The other consideration is variable rates versus fixed rates, or even a split rate loan. A variable rate loan will change rate as the market changes, meaning you could be better or worse off should market conditions change over time. A fixed rate loan locks in a set rate for a number of years, giving you certainty, but has associated fees and restrictions that reduce flexibility. Deciding which type works for you will also help determine the right lender.
Applying for a loan
Generally, there are four main areas the lender will look at:
- Your income
- Your deposit
- Your credit history
- Your living expenses
A mortgage broker with go through each of these things with you before you apply for the loan, meaning you have time to fix up any areas that might make it trickier to get approval.
It is important though to speak with your bank or broker before you go house hunting and fall in love with a property! All these things help determine how much you can borrow and what you will need to be approved. Knowing your budget before you go shopping is always a good idea.
The other area lenders will look at is how stable you are. Showing stability in your employment and your accommodation shows the banks you can stick with it when it comes to paying the mortgage.
To find out more, take a look at our post about what the banks are looking for when you apply for a loan.
Living with your mortgage
Just like any other financial product, you need to know how to look after your home loan long term.
Once you have your mortgage in place and you have taken ownership of your property, it is so important to make sure you make payments on time, every time. This is your biggest asset and your biggest credit reference, so you need to keep it in tip top condition.
Each year, revisit your interest rate. Talk to your lender or your mortgage broker and see if the rate you are on is the best they can do. Even a small drop means more money in your pocket each month! A good mortgage broker will proactively do this for you on the anniversary of your loan.
Look at how often you are making payments. Making little changes such as paying weekly or fortnightly rather than monthly can help pay off your loan faster.
Make sure your home loan still fits your life circumstances. Maybe you are having a baby or you have been made redundant and you need to refinance or pause payments. Talk to your mortgage broker about any changes you need to make.
And finally, you might need to decide on your next move, whether it is time for a bigger house or you need to renovate or extend. The capital growth in your investment and any equity you have built can be accessed to help make this happen. Reach out to your mortgage broker to find out what your options are.
The investment you make in your mortgage is usually the largest you will make, so it makes sense to know how they work. Armed with the right information and a great mortgage broker, you can be confident you are getting the best loan for your circumstances.