House keys on a keychain in front of a new home

What to Consider When Choosing a Home Loan – Amount, Purpose and Type

The idea of buying a new home can sometimes be daunting, with long-term commitments and large amounts of money dominating the conversation. A home loan might seem like one of those intimidating aspects, but figuring this out can put you on the path to your dream property. 

Today we’re going to begin our exploration of home loans, examining the right amount and the right type for your purpose. 

The Amount

Attempting to borrow too little or too much will ultimately sabotage your home buying experience. That’s why you should always examine your income and expenses and any foreseeable factors that might change this in the future. 

Once you have crunched the numbers you can figure out your total mortgage repayments. Generally they shouldn’t exceed 30 percent of your income. 

The Purpose

People buy houses for more than one reason, and the nature of your loan may depend on this. Some different reasons you might need a loan include: 

  • Buying a home to rent out or renovate for resale
  • Accessing the equity in your home through a line of credit
  • Borrowing against the equity in your home through a reverse mortgage
  • Buying a home to live in 

Loan Type

With so many options available it’s easy to be overwhelmed in the search for a home loan. To assist you, here are 4 different types of home loans and the things to consider when assessing them. 

  1. Fixed Mortgage

When you choose these types of loans, the repayments you make will remain the same for a set period. Because of their stability, these loans are typically higher than other, variable options. 

A fixed mortgage gives you greater ability to manage your budget and gives you protection against the fluctuating market. On the other hand, if interest rates do drop you will be unable to enjoy those savings. 

  1. Variable Mortgage

 Variable loans increase and decrease based on the cash rate. These loans usually follow the Reserve Bank’s official rates and are generally lower than fixed rates. 

While you can enjoy a lower base rate, your repayments are less secure, making it more difficult to budget from month to month. 

  1. Introductory Rate

If you’re a first homebuyer or need time to ease into home loans, introductory rates might be ideal for you. They usually offer you a lower rate for the first year to assist you in your adjustment – either in a fixed or variable form. 

Be sure to analyse these carefully though, as the rates after the introductory deal may put you in a worse position in the long term. 

  1. Low Doc Loans

There’s usually a lot of paperwork involved in loan applications. If you have recently started working or are a business owner, you might not have all the information required. Low doc loans waive much of this paperwork so you can get started. 

These do involve some risk on the lenders part though, so you may be subject to a higher than usual rate and additional fees. 

To learn more about home loans, stay tuned for part 2 of this blog, where we explore deposits, features and other considerations. If you need help navigating your home loan in Melbourne, talk to All Hours Conveyancing. Our team can get you into your new home faster. Call 03 9649 7832 today.

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