Home is truly where the heart is, but lifestyles can change and people grow, so the need to move to a dwelling that meets those new needs arise. As a second-timer home buyer, you can apply for a home loan to help you finance your next purchase. However, loan requirements usually vary, depending on the type of property you want to buy. This is why you need to do some research first to make the best use of your home loan.
Our previous article talked about the possibilities of financing your next home purchase through loan porting and bridging loans, so we'll be putting the spotlight on other options that may better suit your needs. As a second-time home buyer, you can extend your loan tenure through the following home loan options:
Different Home Loan Finance Options for the Next Home Buyers (Part 2)
1. Variable Home Loans
As you probably know by now, variable home loans cost lesser than fixed home loans at the moment. Since they do not include a fixed interest rate, they may offer lower interest rates in comparison to fixed home loans.
However, a variable home loan is much riskier than a fixed-rate home loan. Borrowers with variable home loans can expect their interest rates to rise, especially when the Reserve Bank of Australia (RBA) makes a change in its interest rates. You can expect variable home loans to have higher interest rates in the long run.
What are the Pros and Cons of Variable Home Loans?
- You get to have a considerably lower interest rate at the start of the term;
- Different homebuyers may find it easier to qualify for a variable home loan;
- It offers more flexibility;
- Payments fluctuate, so it's harder to set a fixed budget for the mortgage payments;
- Monthly payments will shoot up when interest rates skyrocket;
- It is more complex than a fixed-rate mortgage;
2. Fixed Home Loans
Fixed home loans offer a fixed interest rate throughout the term of the mortgage. The interest rate is locked in at the start of your loan and remains the same for the entire loan period. Fixed home loans are more reliable since payments don't vary.
Fixed home loans are the best home loan for first-time homebuyers. It is also a better option for those who don't want to deal with the stress of fluctuating interest rates.
What are the Pros and Cons of Fixed Home Loans?
- It has a fixed interest rate, so it's quite predictable and easier to budget for your monthly dues;
- Your repayments are fixed, so your mortgage term can be shorter than with a variable home loan;
- You don't have to worry about rising interest rates;
- It has a fixed interest rate, so lenders can't change it even if RBA intervenes and establishes a lower interest rate;
- It is not as flexible as variable home loans;
3. Split Home Loan
If either a fixed home loan or a variable home loan doesn't suit your fancy, then a split home loan may be the perfect answer. The bank will split the loan into different components. The fixed component is the same as a traditional fixed home loan, while the variable component is used to cover any difference in interest rates.
If you prefer the stability of a fixed-rate home loan, but also want to know what your repayments will be if RBA reduces interest rates, you can take out a split home loan.
What are the Pros and Cons of Split Home Loans?
- It is cheaper than a fixed-only home loan;
- It is more complex than a traditional home loan, but it provides you with more flexibility;
- Fixed payments will help you budget for your monthly home loan payments;
- In a volatile interest rate environment, your repayments will fluctuate, depending on the home loan's variable component;
- You'll have to double the account-keeping fees;
- You will need to pay a break fee if you plan on paying off your loan early, or decide to refinance;
The Bottom Line: Finding the Right Home Loan Financing Option for You
As you can see, you have different home loan financing options available to you. You just need to find one that works best for your financial situation.
If you're a second-time home buyer looking for a home loan to help you finance your next home purchase, make sure to discuss the available options with your bank. This way, you'll be able to make the most out of your home loan and avoid future financial headaches.
If you need more help with your home loan, you can book a free consultation with one of our loan experts today.
How Can We Help You?
If you're looking for the best mortgage broker in Sydney, you've come to the right place because Wealthy You is here to assist you in your home buying journey. Our bridging loans for pensioners can help you move forward in your next home purchase!
Wealthy You is one of the leading mortgage companies in Sydney, offering various mortgage solutions that meet every client's needs. Since we're alternative lending specialists, we provide restructuring loans in Sydney that make refinancing your home simple.
Learn more about our services today!