Ten things to know about your home loan
A home loan is both simple and complex.
The overall concept is easy to understand. You borrow money and buy a property. You pay the loan back in small amounts over a long period of time. Within this simplicity are a million complexities. Here’s ten to think about:
- The location and type of property you buy may affect the choice of lenders and how much you can borrow
- Investment loan interest rates are higher than home loans
- You will require lenders mortgage insurance if you are borrowing more than 80% of the property value. The premium will be higher if you are self employed or if the property is for investment purposes. If you are self employed and the loan is for investment purposes you pay even more.
- For borrowers 50-55 and above and want to buy a home, most lenders require an exit strategy that doesn’t involve selling the home. Downsizing is not considered a valid exit strategy. Nor is use of superannuation with some lenders
- If you use a security guarantee where someone else has offered a property to help secure your loan, the guarantee only needs to stay in place until your loan is down to 80% of your properties current value.
- If you bought an investment property and now live in it, check with your lender as you may still be paying investment loan rates. Ask them to change the rate to a home loan rate. It should be lower
- With some exceptions you don’t have to have a savings account with the same lender as your home loan to make loan repayments
- Mortgage insurance is typically the only type of insurance a lender can insist that you have with them
- Interest only loans reduce your borrowing capacity, even though they reduce your loan repayments
- If you get a gift of money for your deposit and leave it in your bank account for three months or more, most lenders accept this as evidence of genuine savings
The list can go on an on. There are many, many small details that affect your ability or not to get a home loan. Professional advice will help sort through this maze quickly and effectively.
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