Earlier this month, ABC Australia reported that the Reserve Bank has agreed not to increase mortgage rates. You should take advantage of this before prices go up. However, it would be best if you did not immediately avail of the first home loan you found.
Considering that taking out a home loan is a significant financial responsibility, you should contemplate several things. Here are a few questions that you need to ask yourself:
How Much Can I Afford to Borrow?
If you plan to take out a home loan for the first time, you have to think about what you can afford in terms of monthly payments. And you have to think about it realistically. You should base your budget on your present financial situation and not what you hope to achieve in the future.
Your first step is to make a monthly budget. It should include an estimate of your monthly income and expenditures, not just your expenses but also your expected savings, investments and other sources of income. If you have not done this in the past, you can use an online budget calculator to give you a headstart.
You should also include your planned home loan payments in your budget and allowances for unforeseen expenses, special purchases and irregular income. You can estimate your maximum loanable amount by calculating how much you will be expected to pay for the monthly amortisation.
Should I Choose a Fixed or Variable-Rate Home Loan?
The interest rate is the principal difference between fixed- and variable-rate home loans. Variable-rate home loans are tied to the bank's prime lending rate, making it easier for your payments to increase or decrease along with the market. On the other hand, fixed-rate home loans keep your interest rate constant for a specified period, for one, two, or five years, making it harder for your payments to increase or decrease.
Some people prefer to take out fixed-rate loans because they want to maintain duplicate payments for a certain period. On the other hand, people who want to save money may go for variable-rate loans. The only downside of variable-rate home loans is the instability in your monthly payments with rising interest rates.
What Are My Repayment Options?
To pay off your home loan faster, you should constantly review your repayment options. For instance, you can ask your lender if you can pay more than the monthly amortization. To make the most of this, you have to ensure that you can afford to increase your monthly payments because increasing interest could increase.
Your repayment options include fixed, interest-only, and additional payments. Your outstanding balance will decrease faster, thereby shortening your loan term. If your lender offers it, you should go for the fixed repayment option to reduce your interest burden and make it easier to budget.
There are many things to consider when applying for a home loan. But there is no need to rush and accept the first offer. Take your time, ask your friends, and do some research on the internet. The house you buy is one of the most significant investments you will make in your lifetime.
If you wish to avail of a home loan, get in touch with Wealthy You. We can help you find the best rates and mortgage options so you can get your dream house in no time! Call us now for more information!