1. Learn your loan lingo
Before you borrow from a bank or lender, brush up on your vocab: a fixed rate home loan locks in your interest rate for about five years, promising consistent repayments (ideal for those on a strict budget). A variable loan – the most popular option in Australia – will vary in line with movements in market interest rates, while a split loan combines the best of both worlds and wins a vote from Charles Tarbey, CEO of Century 21 in Australia. “In the current market, it’s often best to take a loan that has a part fixed component to protect yourself against interest rate rises,” he explains.
2. Deal with debt
To maximise your chances of securing a home loan, get your finances in order first. If you already have a large debt or bad credit rating to your name, you may find it harder to obtain approval. The key here is to project towards the future – if you’re looking to purchase a property next year, now’s the time to work out a payment strategy (and contact your credit provider for assistance if you’re struggling).
3. Enlist the experts
We call on real estate agents to show us the hottest properties, and interior designers to deck them out, so why wouldn’t we engage an expert to help us find the right home loan? A mortgage broker will research the market, compare bank rates and do the heavy lifting (read: negotiating with lenders) for you. “With so many options on offer, a broker – representing a number of institutions – can give you unbiased choice,” says Charles. But do your research and choose a professional you can trust: brokers earn a commission from signing you up to a home loan, and may be swayed towards certain lenders.
4. Reassess and refinance
So you’ve nailed steps one to three and have been living the great Australian dream of home ownership – but don’t get stuck in a rut. If you’re unhappy with your current lender, looking to fund a renovation or hoping to reduce mortgage repayments, it may be time to refinance your loan. You can go one of two ways, either negotiating a new home loan with your current financial institution, or switching to a new one altogether (often smaller lenders serve up competitive deals). That said, there may be substantial exit costs involved in changing providers (especially on a fixed rate loan), so be sure to crunch all the numbers before making any decisions.
5. Read the climate
The property market always ebbs and flows, but every once in a while an event has a radical impact. Case in point: the recent Royal Banking Commission. The inquiry into Australia’s major banks revealed the institutions had been lending to customers who couldn’t afford repayments; as such, we’re now seeing a serious tightening in lending criteria. Explains Charles, “Homebuyers have been greatly impacted as the banks look more closely than ever into the lifestyle of the potential borrower.” It’s not all doom and gloom though – while securing a loan will take due diligence in the current climate, declining house prices are providing new opportunities to purchase.
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