4 best home loans for first home buyers in Australia

Buying your first home can be daunting and confusing, especially when it comes to choosing a home loan. With the help of a qualified mortgage broker, you can find a home loan that is just right for your first home. When you pick out your home loan, you want to take a good look at the interest rate as this in particular will make a huge difference to your debt and repayments, especially over the long term.

The next thing to take into account is the different options and features on offer. Some features can help you get your mortgage down faster, while some give more flexibility or perhaps a special feature like a redraw. Features and extras can often cost extra inside a loan, so it is worth taking the time to work out exactly what features you would use and the ones you could do without. Let’s take a look at the four main home loans that first home buyers tend to take on, below.

1. Principal and interest loans

A principal and interest loan is a very common loan to take out for a first home buyer and is quite straight forward too. You just make your regular payments to the loan amount that you have borrowed, which will also go towards some interest on that loan amount. There will be an agreed loan term, which is usually 25-30 years.

2. Interest-only loans

For whatever reason you may have, you may want to consider paying only interest on your loan for an initial period, which is usually a handful of years. During this time, you won’t pay any of your actual loan amount borrowed, just the interest that has accrued. Your debt won’t be reduced at all, but it allows you the time you need to get your finances ready for a principal and interest loan. Speak to your mortgage broker to ensure that this would be the right product for your situation.

3. Fixed interest rate

A fixed interest rate means that you will have a loan with an interest rate that is “locked in” and will not change its rate until that period has ended. This may be about 3-5 years in length. After this set period, your interest rate will “unlock” and change to variable. This means that your interest rate will now change with the trending rate that other market lenders are following.

A fixed interest rate can be great when you are relying on set figures for your budget. The downside is that, if the variable rate goes down, you will not get the enjoyment of a lower rate. Fewer loan features on a fixed-interest loan may cost you less in the short run yet may cost you more if you decide to switch loans later, incurring a break fee. [Text Wrapping Break].

4. Variable interest rate

A home loan with a variable interest rate can have interest repayments that go up and down depending on the lending market. A variable interest rate loan usually has more loan features and is quite flexible in many ways. You can easily switch loan products if you want to, without a break fee. Budgeting may not be as easy with a variable interest rate, and it is not usually the cheapest loan product due to its many features. But it is overall a good, commonly used home loan.

Think hard about your loan term

Just like your interest rate affects the cost of your loan greatly, so does your loan term. Your loan term is the amount of time you have left to pay off the loan, which obviously will affect your interest accrued and the size of your repayments. If you have a shorter loan term, you may have bigger repayments, but you will have it paid off quicker as you will avoid a lot of interest. A longer loan term means you can have smaller repayments, but over time interest will add up.

Avoid unnecessary features and work out what you really can afford

When speaking to your mortgage broker to weigh up different loan products, consider what loan features you need based on your circumstances. You may also feel as though you can “stretch” yourself to a high loan amount but consider giving your finances a buffer in the case of illness, loss of job, interest rate hike, or other change of circumstance. Ensure you can pay off your home loan if your situation changes overnight.

We can help

There are many different loan types on offer for a first-time home buyer. Speak to your mortgage broker to ensure that you choose a loan product that is suited to your specific needs and objectives and get one step closer to your first home. Call Watson Mortgages on 02 4038 1623 to make an appointment with one of our experienced Brokers today or complete our Contact form and we’ll get right back to you.

 

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