Applying for Your First Home Loan?

Buying your first home is both an exciting and a daunting experience. Exciting because you're taking a big leap forward in your life, and daunting because it seems that there are simply too many things to consider when you do this.

One of the most confusing and stress-inducing aspects of getting your first home is when you're applying for a home loan. It comes in so many varieties that it can be difficult to choose which one is for you. For starters, here's what you need to consider in your first home loan:

  1. The Term. This refers to the length of time you will have to pay your loan with the assumption that you'll only make the regular payments (usually monthly, fortnightly, or weekly). The period could stretch anywhere from 20 years up to 40 years, depending on the amount that you wish to borrow. A shorter term means you'll be paying off your loan sooner, but at the cost of higher repayments. On the other hand, a longer term is easier on your pocket, but you'll pay more in interest in the long run.
  2. Fixed/Variable Loan. Fixed loans are ideal if you wish to pay steady rates for a set period of time (about 1-5 years). Meanwhile, the interest rate in variable loans shifts from month to month depending on changes made by the RBA. The former option can help protect you from rising interest rates and is ideal if you want stability in your repayments. Meanwhile, variable loans allow you to take advantage of drops in interest rates.
  3. Basic/Flexible Loan. As the name suggests, basic loans only have the most essential features you might need, although some lenders have started to offer offset accounts to borrowers. The upside of this type of loan is that the interest rates are typically lower. Flexible loans meanwhile have a wealth of features such as redraw facilities, the ability make early repayments without penalty, and a savings account. These come at a price though as flexible loans have higher interest rates.
  4. Interest-Only or Principal and Interest Payments. You also need to consider whether you want to make interest-only or principal and interest payments. The former means that you will pay only the interest for a set period (about 1-10 years), after which you'll pay off the principal. This option can be easier on your finances. Meanwhile, you will pay the principal and interest at the same time in the latter set up. The advantage here is that interest repayments decline as more of the principal is repaid.

There you have it, the important things you need to consider when applying for your first home loan. To get the best deals on your loan, contact the qualified advisors at Rate Detective today. They can help you find the right loan based on your personal circumstances and will provide you with rate comparisons of Australia's top lenders.

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Published on November 11-th, 2012 in Home Loans
Damon Rasheed is the CEO of Rate Detective, an Australian financial service comparison sites specialising in Life Insurance, Income Protection Insurance and home loans. Damon holds a Master's Degree in Economics from the University of Melbourne and has been involved in many start-up internet businesses.

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