Everyday in Australia, people eager to become home owners for the first time seek out and receive financing to purchase their first piece of real estate. Many are too enamored with the idea of owning though, and end up with a mortgage that serves more as an oppressive yoke than an instrument that will propel them to financial freedom.
By learning how to select a home loan by evaluating vital points as laid out in this article, you’ll end up in a much better position than your average first-time property owner.
Compare rates, payment amounts and fees from different lenders
Before rushing into the process of getting a mortgage, approach each of the lenders that you are considering and ask for a key facts sheet. They are obligated by law to provide them upon request, so if one of them gives you the run around when you ask, run away – fast!
These lists give you a high organized breakdown of all the payments you will be expected to honour, making it easy to compare home loans, as well as being able to understand the fees and charges that apply under varying scenarios. They should compare what you will pay versus other types of loans, so be sure to get ones from brokers that allow you to see what mortgages would be best for you in the long run.
Variable, fixed rate, or split rate mortgages – which do you choose?
Now that you have an idea of what you can generally can expect to pay with different lenders, the next order of business is to determine whether to go with a variable, fixed rate or a split rate mortgage.
Taking on a variable rate mortgage mean that your payments will track up or down depending on movements in interest rates, making it a good bet if you expect rates to go down over a set period time over the course of your mortgage.
If the idea of predicting the future (or paying higher rates at some undefined point in the future) scares you, then a fixed rate mortgage will appeal more to you. The big risk here is that if rates plummet during your term, you’ll be stuck paying elevated rates while everybody else is enjoying lower payments.
You can enjoy the best of both worlds with a split rate mortgage, with exposes part of your monthly rate to the whims of the market, while locking in the other portion for the term in question.
Vendor financing – is it right for you?
If you are presently renting, and you think your landlord might be open to entering into a rent-to-own arrangement, pursuing a vendor financing scheme might be an option that would work best for you.
Under this structure, your rent payments count as installments toward paying off the mortgage on the unit or home that you currently occupy, with most of the advantages of renting (maintenance, payment of property taxes and so forth are paid by the owner) intact.
However, the protections afforded to mortgage purchasers under Australian law are not present to payees in vendor financing schemes, which means you could be left high and dry with nothing to show for your efforts should your landlord go broke and default on his property.
Evaluate the character and financial solvency of your landlord before entering into these arrangements if you do decide that this model will fit your needs.