With the surge in house prices these days, getting into the market early is imperative for most Australians looking to buy a new house.
A multitude of home loan options is available in the market. And if you do not have the correct information, then deciding the best loan as a first home buyer in Adelaide can be daunting.
A good starting point is working out whether an interest-only, split rate, fixed or variable rate home loan is suitable for you.
Let's take a look at different types of home loans in more detail
Fixed Rate Home Loans
The interest rate in a fixed-rate home loan is specified for an agreed period. It means that your loan repayments are consistent. Typically, three and five-year fixed-rate mortgage are the most popular.
PROS
- It enables you to make a limited number of extra repayments annually at no cost.
- If you are looking for certainty on your loan repayments and a strict budget, fixed-rate home loans are a great option.
CONS
- When compared with variable-rate home loans, fixed-rate loans offer less flexibility.
- If the interest rate drops, you may be locked into a fixed rate higher than a variable rate loan.
Variable Rate Home Loans
Among Australians, variable interest rate loans are popular. Here, your loan repayments will fall or rise in response to the cash rate fixed by the Reserve Bank of Australia.
PROS
- It offers more flexibility as compared to other loan types. Over the life of your loan, you can quickly reduce your debt.
- Most variable loans offer a mortgage offset account.
CONS
- If the interest rate increases, the amount of your regular loan repayment will also rise.
Some basic variable loan options will not allow you to make additional repayments to pay off your mortgage quicker.
Interest Only Home Loans
As the name suggests, interest-only home loans allow you only to pay off the interest. These types of mortgages are typically offered in the first 1-5 years of the entire loan term.
PROS
- There will be smaller repayments during the interest-only period.
- If it is a variable rate mortgage, you have an option to pay off and redraw the principal.
CONS
- When the interest-only period ends, you will end up with the exact amount of debt.
- Also, you will end up paying a higher repayment amount once the interest-only period ends.
Split Rate Home Loans
It is a combination of both fixed and variable rate loans. You can decide how much of your loan will be at a variable rate and how much will be at a fixed rate.
PROS
- If the interest rate drops, the variable component of your mortgage will also fall.
- When the interest rate changes, there will be a minor variation in your mortgage repayments.
CONS
- You may be penalised on a fixed-rate component if you make an early exit.
- When the interest rate rises, the repayment amount on your variable part will also increase.
Low Doc Home Loans
Are commonly selected by those who cannot provide standard documentation or proof of their steady income. Low doc loans come with higher interest rates as their applicants perceived as higher-risk borrowers.
PROS
- May excuse bad credit rating.
- Less proof about levels of income needed.
CONS
- Higher interest rate when compared with other loans.
Are You Buying Your First Home In Adelaide?
Let us help you start your property journey. We will work with you to find the right First Home Buyer Grants and loan for your situation.
Also, we have some nice house and land packages waiting for you.
Just call me directly on (08) 8263 4009 for a quick chat.
Steve Barker
Adelaide First Home Buyers
Ph: (08) 8263 4009