5 Questions to Ask Before Taking On a New Home Loan
With hundreds of home loan products available across multiple lenders, it is overwhelming to decide which loan best suits your needs. As mortgage experts, we have plenty of experience guiding our clients through the process of obtaining a new home loan. We work not only with the Big 4 Banks, but also independent lenders, which gives you the best choice on the market.
In this article, we have compiled the 5 top questions that you should consider before taking out a new home loan.
1. How much of a deposit do I need?
The deposit required will vary depending on the type of property you intend to purchase. Most lenders require a deposit of 20% for regular suburban or inner-city homes. A higher deposit (usually 30%) is often required for apartments under 50 square metres, severely dilapidated properties and rural zoned properties. Lenders’ Mortgage Insurance (LMI) is available to most borrowers in case they do not meet the minimum deposit requirement.
2. Will I need LMI?
You can apply for a home loan with a deposit as low as 5%, but a deposit of less than 20% will be subject to Lenders’ Mortgage Insurance (LMI). LMI is insurance to protect the bank in case you default on your loan, and the fee is calculated on the proportion of your deposit below 20%. Unfortunately, it offers no protection to you as a borrower and can add thousands of dollars of costs to your loan expenses.
3. Should I choose a fixed or variable rate for my new home loan?
This depends entirely on your personal financial position and objectives. A fixed rate loan is usually cheaper, however comes with disadvantages including a limited ability to make additional repayments and no access to an offset account. Variable rate loans are available with extra features, though there is always the risk that rates will increase. An experienced mortgage broker can help you determine which option is right for you and may even recommend a more complex structure, like splitting the loan into half fixed, half variable.
4. What fees will I need to pay?
In addition to the loan and LMI (if applicable), you will also need to pay fees to the bank and government in order to complete the home purchase process. These include:
- Property valuation fees
- Loan settlement fee
- Discharge of any pre-existing mortgage fee
- Registration of mortgage
- Discharge of caveats
- Loan establishment fee
- Annual account fees
- Stamp duty
You may be able to negotiate small discounts on bank fees, however government fees are set at flat rates across all lenders. Aside from the above, you may also be subject to taxes and property ownership contributions (eg. strata fees).
5. Can I really afford a new home loan?
Aside from the costs associated with a home loan, you must also consider living expenses, taxes, strata costs, insurance and savings in case of emergency. If you are already in debt through credit cards or other loans, you also need to consider the cost of these obligations. A responsible lender will work with you to determine your budget and a long term strategy to finance your new home.
Although buying a new home is demanding, it is a worthwhile long term investment and can be the first step toward financial freedom. Contact a home loan specialist at Lendfin to take the stress out of applying for your new home loan and ensure you get the best loan for your financial situation.