Home loans come in different varieties that meet the specific needs of individuals. Some are fixed, for example, to cater to those who wish to make fixed repayments regardless of the changes in the market. Meanwhile, others choose variable rates to take advantage of dips in the rates. However, whatever the type of home loan you choose, there are basic elements that each type shares. And that is what we will share with you in the following paragraphs, so read on.
Here are some of the things you need to be familiar with:
- Principal - this refers to the amount of money that you borrow from the lender. How much you can borrow depends on a variety of factors, including the type of job that you have, your credit history, and the size of your household.
- Term - this is the period within which you need to pay your loan. A term could range anywhere from 20-40 years, although on average it is about 25-30 years. By making bigger payments on your loan, you could significantly shorten its term. On the other hand, you could make smaller payments if you are on a budget, with the downside being a longer payment term.
- Interest - sadly, your lender isn't running a charitable institution. They need to earn something from the arrangement too. That is where interest comes in. This is the fee that they charge on top of your loan. The amount of interest that you need to pay varies depending on factors such the amount of money you borrowed, the prevailing interest rate, and the term of the loan.
- Repayment/Amortisation - as the name suggests, this is the payment that you make for either the interest or principal, or both. Depending on your arrangement with your lender, you may pay for the interest first, then followed later on by the principal, or you could also pay both at the same time. You may also make your repayments on a monthly, fortnightly, or on a weekly basis.
These terms are essential, especially if you are planning on buying your first home. Being familiar with these will help understand the sometimes dumbfounding world of mortgages.
Speaking of home loans, the qualified advisors at Rate Detective are ready to help you find one. They will look into your personal circumstances and provide you with rate comparisons of Australia's top lenders, so that you may finally find the home loan that truly fits your needs.