A mortgage is a loan that’s taken out to cover the purchase of a property or land. When you take out a mortgage, you can generally choose the length of time it will run for. The loan, which is secured against your property, is generally paid off in regular instalments until the full value and payable interest has been covered.
Before you make the major life decision to buy a property and take out a home loan, ensure you understand how to apply for one, as well as how mortgages work. Typically, a home loan works in the following way:
It’s important that you work out exactly what you need from your loan and how much it will cost you in fees before you make a final decision. A lot of people are unlikely to have the full purchase price available upfront, which is why there are a variety of home loan options available to home buyers, which can include a combination of:
It’s important to understand that interest rates are one of several factors worth taking into account when comparing home loans. There are different types of interest rates (expressed as a percentage) and the amount you pay can depend on your credit provider and the term of your agreement with them. Note that there may be other fees associated with the loan you choose. The types of interest rates can include:
Most mortgage providers will assess how much you’re able to borrow based on a few factors. You may be asked for information such as:
If you’d like to estimate how much your home loan repayments may cost you each month, a mortgage calculator could be an efficient way to help. There are a number of reliable online tools designed to help remove some of the guesswork for you. A home loan calculator can help you estimate the following:
An interest-only mortgage calculator can also help you to estimate some of the additional costs such as:
There are a few ways that may help you to pay off your mortgage faster:
The cost of lenders mortgage insurance can be anything up to thousands of dollars, and is often added to your home loan amount. There are many factors which can affect the cost of your lenders mortgage insurance (LMI), or whether you are required to pay it at all, including the following:
Becoming a guarantor is a huge responsibility, and one that you should take into great consideration before you make your final decision. Once you sign your name as the 'guarantor' of a loan, this can make you legally responsible for the full loan. Therefore, you could be legally accountable for paying back the entire loan if the other person is unable to make their repayments. As the guarantor, you’re also likely to be responsible for any additional fees, charges, and interest that are left over if the other person defaults, meaning you’re completely responsible for the amount outstanding until it’s paid off.
A standard home loan term can last anywhere from 25-30 years, with some lenders also offering loans that span across 40 years. Although 40-year loans may help you to enter the market sooner with reduced payments due to the long span of the term, it could potentially add additional interest costs to your loan.
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