FIRST HOME BUYER HOME LOAN
If you are a first home buyer, you may be wondering which features in a home loan you should look for. As lenders generally don’t offer home loans specifically for first home buyers, we’ve compiled a list of loan types and features that you may like to factor into your decision-making process.
This is the number one sought after feature for most borrowers, including first home buyers. A lower interest rate means lower repayments and may result in you being able to pay off your mortgage sooner.
A Lower Deposit
Saving for a deposit is one of the biggest hurdles of homeownership, so it’s a good thing there are a variety of low deposit home loans on the market. A low deposit home loan allows you to borrow more than 80% of the property’s value, which means you’ll only need to provide a 5-10% deposit.
While a low-interest rate and deposit may be the primary focus for first home buyers, extra features such as an offset account or redraw facility may be handy. Both allow you to contribute extra funds into your offset account or home loan directly and can help reduce the amount of interest you pay over time.
Principal & interest payments or interest only
You can choose a loan that pays principal and interest together or interest only for the first few years.
The advantage of paying down your principal balance is that your interest rate will likely be lower than an interest-only loan, and your interest will reduce with each repayment. However, an interest-only loan can be a helpful alternative for first home buyers to step into the property market, as repayments will be lower in the short-term.
Remember to read the fine print
It’s important to look at home loans carefully beyond the advertised interest rate. To get an idea of the true cost of servicing the loans, check the loan’s comparison rate, which includes the annual interest rate, and upfront and ongoing fees.
Another thing to take note is that some lenders offer ‘honeymoon loans’, which promotes a discounted interest rate and lower repayments for the initial period. Once the ‘honeymoon period’ is over, the loan will most likely revert to a standard variable home loan, so make sure you can meet the higher repayments once this happens.
What am I eligible for as a first home buyer?
The great news is that there are a number of schemes available to help you put down your deposit faster.
The First Home Owners Grant is available across all States and Territories (except ACT) to eligible buyers as a one-off, lump-sum payment. Depending on where you live, the grant may only apply to new properties or properties under a certain value.
The other is a new government initiative called the First Home Loan Deposit Scheme (FHLDS), which gives eligible first home buyers the ability to put down a deposit as little as 5% of the purchase price. Traditionally, deposits less than 20% of the house price are charged with a Lender’s Mortgage Insurance, which can potentially set you back tens of thousands of dollars. Accessing this scheme comes down to meeting the requirements and timing, as there are only 10,000 FHLDS spots each financial year.
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