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Home ownership is a complex endeavor that never ends. Starting from the day you decide to become a homeowner the responsibilities of this decision become a part of everyday life. In the beginning of the process your decision consists of weighing out the pros and cons of home ownership; from the emotional responsibility to the financial details. Once you decide you want to own a home you have to then decide what you can afford. If you can’t afford it now, how can you go about either obtaining the financing or saving to realize your dream of being a homeowner. While there are many loans geared for first time home buyers, there are equally as many that are geared specifically for those who are looking to expand a current home or invest in additional properties.
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Loan Options
There are several home loan products available for people looking to become homeowners. Not everyone will qualify for all of the financing options but for most people with decent credit there are several viable options for financing to buy or building that can be available through a variety of different lending institutions throughout Australia.
Variable - A variable rate home loan is a loan that has an interest rate that varies according to the market. The interest rate on this loan can go up or down depending on market changes. This is very popular loan for investments and first time home buyers. There are many different types of variable loans offered through most financial lenders.
Long Term Fixed Rate - A long term fixed rate loan is a loan that offers a fixed interest rate for an agreed upon amount of time. When the loan rate expires it will revert to a variable rate unless you negotiate another fixed term. This loan offers the security of a set payment amount every month and is not affected by the fluctuation of the market.
Short Term Fixed Rate - A short term fixed rate loan is another type of loan that offers a short term fixed percentage rate for a period agreed upon by the lender and the borrower. Standard short term fixed rate loans are offered for the following time frames:
- 1 Year Fixed
- 2 Year Fixed
- 3 year Fixed
- 10 Year Fixed
With a standard fixed loan you can have the security of knowing that your repayment schedule will not change regardless of market trends. Most standard fixed rate loans will not let borrowers repay ahead of schedule so it is often difficult to get ahead of the loan repayment sooner than the agreed upon contract, however this is one of the most popular loans especially for first time home buyers.
Line of Credit - A line of credit home loan is an interest only variable rate loan. This type of loan is secured against other property allowing the borrower access to funds if and when necessary. This is not a viable option for a first time home buyer as they would have nothing to secure the loan against. This is an excellent option for commercial investors or individuals who own multiple properties because it allows them to borrow against their own investments. The interest rates on line of credit loans tend to be significantly lower than other standard loans.
Reverse Mortgage - A reverse mortgage loan allows existing home owners to borrow cash against the agreed upon value of a home. A reverse mortgage loan allows you to free up cash to use for other things and apply this as debt on the mortgage. This debt accrues until the borrower either moves out or dies. While this is not a viable option for first time home buyers it is an option for those existing homeowners looking to free up cash for other things, especially in retirement years.
