Residential Home Loans

Embarking on the journey of securing a residential loan can be both an exhilarating and a daunting endeavour. At The Finance ShoppeI aim to demystify this process for you by breaking down the key elements of residential loans, also commonly known as home loans or mortgages.

Types of Residential Loans

There are several types of residential loans available, each catering to different needs and financial situations:

• Fixed-Rate Loans: These loans have an interest rate that remains constant for a specified period, providing certainty in your repayment amounts.
• Variable-Rate Loans: The interest rate on these loans can fluctuate with changes in the market, which means your repayment amounts may vary over time.
• Split-Rate Loans: A combination of fixed and variable rates, split-rate loans allow you to allocate a portion of your loan to a fixed rate and the remainder to a variable rate.
• Interest-Only Loans: Initially, you pay only the interest on the borrowed amount, usually for a set period. After this period, you start repaying both the principal and the interest.
• Principal and Interest Loans: From the outset, you pay back both the principal (the amount borrowed) and the interest, which reduces the total loan amount over time.

Factors to Consider

When considering a residential loan, there are several factors to take into account:

• Loan Term: This is the length of time you have to repay the loan. Common terms range from 25 to 30 years. The term you choose will affect the size of your repayments and the total amount of interest paid over the life of the loan.
• Deposit: The larger your deposit, the less you need to borrow, and consequently, the less interest you will pay over time. A deposit of 20% or more typically helps avoid paying Lenders Mortgage Insurance (LMI).
• Lenders Mortgage Insurance (LMI): If you have less than a 20% deposit, you may be required to pay LMI, which protects the lender in case you default on the loan.
• Additional Features: Some loans come with features such as offset accounts, redraw facilities, and the ability to make extra repayments. These can offer more flexibility and potential savings on interest.
• Fees and Charges: Be aware of any application fees, ongoing account-keeping fees, and discharge fees, as these can add to the cost of your loan.

The Importance of Pre-Approval

Obtaining pre-approval for a home loan can give you a clear idea of how much you can spend on a property and demonstrates to sellers that you are a serious buyer. Pre-approval can make the process smoother and can give you an edge in competitive housing markets.

If there’s more you’d like to know or you’d like us to find some suitable options for you, feel free to get in touch.