Purchasing your first home can be exciting but will usually require that you take out a mortgage loan. In your lifetime, a mortgage loan can become your largest debt, so understanding the process is critical.
If you’re looking to finance a home loan in North Sydney, or purchase a home or a investment property in the North Shore or other parts of Sydney here are the basic kinds of loans you’ll want to consider.
1. Fixed-Rate Loan
What it is: one of the most straightforward home loans on the market, it offers the same interest rate for a fixed period within the timeframe of your proposed loan. For example, you may have a fixed rate of 3.6% over 5 years. After this period, the mortgage will revert to standard variable rate at the discretion of your lender.
When you should use it: this home loan is best for budgeting, as you can prepare to pay the same amount every month or fortnight. If interest rates rise above your fixed rate, you will not be affected either. However, take note that these loans may not offer additional repayments or a redraw facility. Conversely, if rates were to drop, you would still have the sae fixed rate.
2. Variable-Rate Loan
What it is: as the Reserve Bank of Australia (RBA) alters its official cash rate, your interest rates with this type of loan may rise and fall along with the market. Variable-rate loans come in two types.
- Standard: these carry flexible features such as offsets, redraws, additional payments, and a split loan. They are usually come with an annual
- Basic: these come with cheaper rates and lower (or no) fees but without the flexibility that the standard variant offers.
When you should use it: basic variable-rate loans are ideal for first-time buyers who are most interested in lower rates. If you have room for flexibility, you can also consider a standard variable-rate loan.
3. Low-Doc Loan
What it is: low documentation loans have higher interest rates than normal and policies can vary from lender to lender. They don’t, however, require borrowers to submit any proof of income. If you’re in need of advice from a mortgage broker in North Sydney, don’t hesitate to give us a call.
When you should use it: these loans are ideal for self-employed borrowers who may have trouble proving their income and assets with set documentation in a timely manner.
4. Honeymoon-Rate Loan
What it is: known as an introductory rate, the honeymoon-rate loan is available to first-time borrowers with a reduction off the standard variable rate for a certain period of time. Honeymoon rates can either be variably discounted or at a fixed discounted rate.
When you should use it: a honeymoon-rate loan can help secure your financial capabilities during the early stages of homeownership.
5. Construction Loan
What it is: this is a progressive loan that is drawn in stages. Lenders may give portions of your loan amount progressively. Here’s what you can expect from a construction loan.
- Stage 1: this will cover the building of the base of your home, which includes the foundation, ground levelling, and plumbing. It may take up 10% of your contract over the span of about 2 weeks.
- Stage 2: 15% of your contract will cover the framing of your property and will take up to a month.
- Stage 3: this is the bulk of your contract at 35% and will be used to build external walls, doors, and insulation. This takes up to a month to complete.
- Stage 4: this part of the loan goes towards fixtures and fittings such as shelves, cabinets, internal doors, and tiles. This takes up about 20% of your contract and also covers plumbing and electrical finished.
- Stage 5: the remaining 15% of your contract, this stage of the loan covers finishing touches such as painting and polishing.
When you should use it: the construction loan is perfect for homeowners looking to build from the ground-up.
When paying off your mortgage, it’s important to structure a financing program that works best for you and your family.
With us at Brick Hill Financial Solutions, arranging to fund your home is our job. For home loans in North Sydney and surrounding suburbs, give us a call!