October 24, 2017

Fixed Rate Home Loan vs Variable Rate Home Loan

Are you planning to buy a house in the near future? One of the main things to do when it comes to home loans is to compare mortgage rates. You can use a home loan calculator that can give estimates on your monthly mortgage repayments and other details. Another thing to look into is the type of home loan. In general, it can be a fixed rate home loan or a variable rate home loan. Of course, each has its own share of pros and cons. In this article, let’s take a look at the features, benefits, and drawbacks of these loan types:

Fixed Rate Home Loan

As the name implies, this type of loan comes with a fixed interest rate for a particular period that can be one year, three years or even five years.

One of the advantages is that since it has a fixed rate, you already know how much you need to pay on a regular basis, enabling you to manage your finances and work around your budget. Also, in case there is an increase in interest rates, you will not be affected.

Now here are the drawbacks of getting a fixed rate home loan. First of all, it said that you will not be affected by rate increase. But the downside is, you will not be able to take advantage of interest rate drops which can make your mortgage repayments lower. Also, you may not be able to redraw as this facility may not be available on this loan type. In case you found a better home loan deal and you want to change your loan, a fixed rate home loan may come with a break fee.

Variable Rate Home Loan

Unlike the fixed rate home loan, the variable rate home loan is affected by interest rate fluctuations. Your loan’s interest rate will move depending on the market rates. This leads to variations in your monthly repayments.

One of the benefits of this loan type is that extra repayments are allowed without additional costs. Making extra repayments can help you pay off your home loan sooner than expected, plus save on interest. It is also easy to switch home loans in case you’ve found something better. The variable rate home loan likewise offers other features such as unlimited redraws on extra repayments as well as setting up an offset account, helping you save on interest.

Of course, since your monthly repayments vary, it can make budgeting more difficult. What’s worse is that you may not be able to keep track and make your mortgage payments if you’re not aware of interest rate increase.

Got other ideas on mortgage repayments and interest rate comparison? Share your tips in the comments section.

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Things to Consider when You Refinance Your Home Loan

If you think that switching to a new home loan or lender to lower your mortgage repayments, think again. Refinancing can be expensive if you’re not careful. There are various reasons why people want to refinance their home loans. As needs change over the years, the mortgage that was suitable before may not fit their situation now.

Think long and hard before you refinance. It’s not as easy as getting the cheapest home loan possible, or whichever proves to be more convenient for you. Here are several things to consider before making the switch:

Know when to refinance

Replacing your current home loan with a new one comes with several advantages. Most people refinance when they need to secure a home loan with a lower interest rate, while some look for improved loan features.  There are also homeowners who are planning to renovate or get a major purchase, and refinancing their home loans will enable them to access home equity to get funds.

Do your research

There’s more to refinancing that just getting a lower interest rate. Make sure that you will benefit from the shift. Compare home loans offered by different providers. It is likewise important to compare mortgage rates. You can also use a home loan calculator so you’ll have an idea on how much your repayments will be and if these can actually help you manage your finances.

Check the conditions of your current home loan

Moving to a new loan or lender is not free. Make sure to look at the conditions stated in your existing home loan to see what the costs of refinancing are. Consider charges like exit fees, deferred establishment fees, as well as break costs.

Consolidate debts

Another reason why many people refinance their home loans is that they will be able to consolidate their debts including credit card and other loans. Debt consolidation can reduce your monthly repayments while getting a new home loan with a better price. When refinancing, take a look at this feature and see if this will work well for you.

Bear in mind that getting a lower rate is not the sole reason to refinance. Ask family and friends who have experience with refinancing so you will have an idea of what it takes to move to a new loan or lender. Consider other factors that can affect your home loan, and ensure that you’ll greatly benefit from the switch.

Do you have other ideas on home loan comparison and refinance? Share your tips in the comments section.

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5 Important Things that You Need to Know about Your Home Loan

Planning to buy a house anytime soon? It’s an exciting milestone for many Australians. It is also one of the major financial decisions you’ll make, that’s why it is important to understand what buying a house entails.

In most cases, people consider getting a home loan, and there are several factors to take into account should you take this route. For instance, it is essential to save money for the deposit. The bigger the deposit, the lower the amount of loan that you need, and the less interest that you’ll pay throughout the loan term.

Here are other important things that you need to know about home loans:

  1. Fixed loan vs. variable loan. There are two types of home loans. The fixed loan has a fixed interest rate for a certain period, while a variable loan comes with an interest rate that changes depending on market rates. In this case, your repayments will also vary.
  2. Compare home loans. Financial institutions offer a wide range of home loans to cater to people’s varying requirements. Look around and compare home loan rates from different institutions to make the selection process easier. A comparison rate is a good way to compare home loan interest rates.
  3. Check the fees. Aside from the interest rate, it is important to know the fees included in your home loan, whether upfront or ongoing fees, as these can easily increase your repayments. Also, esquire if there are charges for incidents such as late payments or cancelling your home loan.
  4. Know the amount of repayments. A home loan calculator is a useful tool to know how much you need to pay every month. Bear in mind, however, that it should serve only as a reference. There are several factors to consider when it comes to getting home loans, and a home loan calculator is designed to give mortgage estimates, not the actual amounts.
  5. Check the home loan key facts sheet. Financial institutions that offer home loans will have a home loan facts sheet available upon request. It will include important details such repayments, fees, interest rates, and other charges. It makes it easier to compare homes across different lenders.

As with any other important document, make sure to read and understand the terms and conditions before signing any contract for your home loan. Clarify terms with the financial institution to avoid having to deal with unpleasant surprises later on.

Got other ideas on home loan comparison and how to compare home loan rates? Share your insights in the comments section.

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How the Reserve Bank Cash Rate Impacts Home Loan Rates

When you look at home loans and compare mortgage rates, you may encounter the term “Reserve Bank cash rate” or simply “cash rate”. This refers to the market interest rate on overnight loans among financial institutions. It is monitored by the Reserve Bank of Australia which is the country’s central bank and has the ability to increase or lower the official cash rate. This is through basis points to manage economic inflation.

The Reserve Bank of Australia covers the country’s monetary policy and discusses how to manage it. The Governor will then release a statement which influences various aspects not only home loans but also bonds and stocks, deposits, and bank rates.

So how does the Reserve Bank cash rate affect home loan rates? Based on the set cash rate, banks will make adjustments to the fees and charges to their products. As the RBA raises or cuts the cash rate, banks will also change their interest rates for home loans. This strong influence can be seen particularly in variable rate home loans. In other words, the Reserve Bank cash rate plays a significant role on what the interest rates on home loans will be, as well as the amount of repayments you need to handle each month. That is why it is important to be aware of it when you compare mortgage rates.

Now that we’ve seen the impact of cash rate on home loans, bear in mind that financial institutions are not required to take on the changes in cash rate, but not following it will do more harm than good. For instance, they may get a bad reputation should they fail to consider a cut in cash rate which means lower interest rates for the customers.

Cash rate is a crucial component on how much interest rate banks will charge customers on their home loans. That is why it is very important to understand the rates your bank implements, so you will have an idea of how high your repayments will be per month. You can likewise do your own research. Many websites of banks offer a home loan calculator that can give you an estimate of your monthly repayments. But since you can only get estimates, it is still better to seek help from a financial expert so you will know how to compare mortgage rates and choose what meets your requirements.

Got other tips on how to compare home loans and mortgage rates? Share your ideas in the comments section.

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How to Use a Mortgage Repayment Calculator

Planning to buy your first home or investment property in Australia? A home loan will be able to help you achieve your goal. There are several banks and other financial institutions that offer different home loans. One important step is to compare home loans and mortgage rates to ensure that you’ll get the best deal.

There are different aspects to look into and factors to take into account when it comes to home loans in Australia. One of the main considerations is to make sure that you’re capable of covering the monthly payments. The amount depends on the actual value of the loan and other factors but in general, it may take a long time for a home loan to be fully paid so it is important to know how much you need to pay on a regular basis.

One way to get an idea of the monthly repayment is through the use of a mortgage repayment calculator. Not only will this provide estimates of your mortgage repayments but also aid you in deciding which home loan type fits your requirements and financial situations.

A home loan calculator is pretty straightforward. All you need to do is indicate the loan amount, interest rate, and the term of home loan. You also need to include the payment type and how frequent you prefer to make payments. The home loan calculator will give you an estimate of the monthly repayment based on the figures you’ve indicated. Also, you can indicate different figures, loan terms, payment frequency, and payment types to see which best suits your capacity to pay.

Some home loan calculators even have a function that enables you to compare home loans. With figures displayed side by side, you can easily see the differences of home loans and identify the most appropriate loan setup for you.

One important thing to keep in mind is that the mortgage repayment calculator can only give estimates of your monthly repayments. You can only use this online tool as a guide and should not be considered as the sole resource for calculating how much you need to pay for your home loan. While it is a helpful resource, it is still better to seek advice from the experts so you will better understand how a home loan works before entering any contract or agreement.

We have a Mortgage Repayment Calculator in the tools section of our website. Click here.

Do you know other things worth considering in relation to home loan calculators? Share your ideas in the comments section.

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What is Lenders Mortgage Insurance?

If you’re planning to get a home loan and doing a research on offerings of financial institutions in Australia, you may have encountered the term “Lenders Mortgage Insurance” (LMI). This offers protection to the lender in the event that the borrower can no longer pay loan repayments. This is very different from the mortgage protection insurance which offers coverage for your mortgage in case of death, sickness, disability, or unemployment.

LMI  protects the lender against any loss that they may incur as a result of the borrower not being able to make their loan repayments. It protects the lender against risk of default, therefore they will be more likely to approve the loan with this policy in place.

Usually a bank of financial institution require you to pay a 20% deposit on the property you are purchasing in order to give you a loan. However, if you don’t have 20%, you might be required to pay LMI instead, which may allow you to borrow a higher portion of the property’s purchase price.

LMI just forms a part of the lender’s policy and home loan products. So how can you choose the best deal on a home loan? Here are several things to consider:

Compare home loan rates

Financial institutions vary in the cost of their lenders mortgage insurance. Make sure to compare mortgage rates to find the one that meets your requirements and financial situation. By having a higher deposit and no requirement for LMI, might mean you can get a cheaper interest rate on your home loan. Therefore just because LMI might enable you to borrow more, this might cost you more money.

Use a home loan calculator

When comparing  home loans, you can use a home loan calculator. This helps you determine the estimated amount of what you need to pay. Take note, however that the results can be used only for reference, factors such as the borrower and security types, and purpose of the loan affect the cost of annual premiums.

Know the factors that affect LMI

Lenders mortgage insurance can be based on several factors. These include the amount of loan that you need, the amount of deposit that you have, and whether it’s a residential property or as an investment. It will come down to the individual insurance company requirements and calculators when calculating how  much you will be charged.

Lenders mortgage insurance can help you achieve your dream of having your own home. But before anything else, make sure to know the ins and outs of this insurance. Compare home loan rates and do your research. You can also seek advice from a professional so you can better understand the factors that can affect your lenders mortgage insurance, and home loan in general.

Do you know other tips on home loan comparison and how to compare mortgage rates in Australia? You can share your ideas in the comments section below.

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Five Reasons Why Having a Loan Approval in Place is Important

There’s no point wasting your time searching for or getting emotionally attached to a property if you can’t make an offer on it.

It’s a sunny Saturday, and you’re prepping for a spot of house shopping. You’ve got a shortlist of properties to see, an inspection checklist, your significant other, and a strong coffee. But, have you got your finance sorted out?

Before you start doing any inspections, you need to get a loan approval. Here’s why:

1. You know you can get a loan

There is no point doing open house inspections and getting excited about a property if you have no assurances that a bank will lend you money to buy it. Get approval before you waste any Saturdays.

2. You can be more choosy

You must compare home loans to get the best deal. While the interest rate is important, you need to consider the entire cost of having a loan, and any discounts you can get on your banking. Organising pre-approval gives you time to shop around for the best home loan for you.

3. Have realistic price expectations

It’s all well and good to use a home loan calculator at home, but until you have pre-approval, you have no idea how much you can actually borrow. Getting pre-approval means you don’t waste time on properties that you just cannot afford.

4. You are ready to buy

When you find the right property, you need to move fast for two reasons. It ensures no one else gets a chance to buy it before you, and gives you a bit of bargaining power. Being able to move ahead quickly will entice some buyers and can use this to negotiate the price lower. Loan approvals in Australia take time, so don’t leave it until you’re negotiating.

5. It makes the negotiations process less stressful

There will be a million things to think about and do when negotiating for a property. The last thing you want is to be chasing a payslip from five months ago to give to a bank. If you have a pre-approval, you just call the bank and provide them with the address and sale price. No stress.

So, before you spend hours poring over real estate listings or plodding around open houses get yourself a pre-approval. It will save you stress, time and money.

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Why some Young Australians are Buying an Investment Property as their First Home

According to the NAB Residential Property Survey released in 2016, there is an increasing number of young, first-time Australian buyers of investment property. It was found that for the third quarter of that year, first-home investors account for 12.2 percent of all new property sales which is higher compared to the 11.1 percent posted in the second quarter.

Why do some young Australians prefer investment property? The survey shows that first-time investors like flexibility. They can invest in property in other locations which offer lower rates, while at the same time, rent in the city.

It’s never too young to join the investment property bandwagon, but before entering the real estate market, there are various things to take into account so you can get the most out of your chosen investment and minimise risks.

Know the ins and outs of real estate and property investing

Buying an investment property is a major decision, that’s why it is important to educate yourself on how the market works. It costs a lot of money and if you’re not knowledgeable enough, you may end up paying more than you should. But don’t worry. There are a lot of resources online that cover what investors need to know.

Seek professional advice

Aside from educating yourself with online resources on real estate and investing, you can seek advice of qualified professionals. Obviously, they understand the market better, so they can give you helpful insights on home loan comparison, investment strategy, and borrowing capacity.

Save early

One common mistake of those who want to venture into property investing is that they fail to save as early as possible. Young Australians can take advantage of time. This is one great asset since savings have a lot more time to grow. Save early and make saving a habit. Eventually, you’ll have enough disposable income to buy investment property.

Compare home loans

In a competitive market such as investment loans, it pays to have a better understanding of mortgage products. To lower your repayments, you can look for features such as lower ongoing fees, offset account, and a redraw facility. It is likewise essential to compare mortgage rates and choose what suits your needs and financial situation.

Use a home loan calculator

This is a great tool to compare home loans and have a better idea of how much an investment property would cost. There is also a home loan repayment calculator that you can use to get the minimum monthly repayments and interest paid.

Got other tips on how to compare mortgage rates and home loans? You can share your ideas in the comments section.

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