Home loans explained

Home loans are also called mortgages and may be as common as the houses they are used to purchase or refinance. However, that does not stop lenders from making them complicated with various features, structures, interest rates etc.

 

What is a home loan?

A home loan or mortgage is a loan advanced to you by a lender in order for you to purchase or refinance a property.

The loan or mortgage is secured against the property that you are either purchasing or refinancing. However, if you fail to meet your obligations as a mortgagee your lender may require you to sell the property to settle the debt.

Home loans or mortgages are generally taken out over 25 to 30 years. But can be tailored to your requirements e.g. a lesser loan term. Regular repayments that you will pay include weekly, fortnightly or monthly options to pay back the loan over the contracted loan term.

 

What do home loans cost?

The total amount you repay for a home loan consists of three elements.

  • The principal that is the amount borrowed
  • The interest the lender chargers
  • And possible monthly or annual fees and charges.

Interest rates

Home loan interest rates can vary significantly between each lender. Under the home loan term, even small difference in interest rates can make big differences to the total you pay for the life of the loan. Interest rates can be fixed or variable depending on your choice.

Fees

There are a number of home loan fees that could apply to a home loan. Some lenders charge more than others. This can include account keeping fees, annual fee, redraw fee and possible application fees.

 

Types of home loans

There are a number of different types of home loans which are suited to different individuals for different purposes. This includes:

  • Variable home loan
  • Fixed home loan
  • Split or combination home loans (variable and fixed home loan combined)
  • Line of credit (very much like an overdraft facility)

 

Remember to ask your mortgage broker what your best home loan options are!


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