Obtaining a loan to purchase a home is likely the most significant investment of your life. You should never rush the process of finding the most favourable loan terms and applying for a loan. Before you start looking for lower interest rates, there are a few things to consider. Take the time to understand the National or State regulations and recommendations.
There Are Different Ways of Paying Interest
Many people overlook the fact that there are several different ways of paying interest. While most people choose a fixed interest rate loan, there are a couple of other options.
Fixed interest rates mean that the interest rate remains the same throughout the life of your loan. If you obtain a 30-year home loan with a 3.69% interest rate, you will still have a 3.69% interest rate in 30 years. If you get a reasonable rate when you apply for your loan, a fixed interest rate is often preferred. However, if you have a higher interest rate, you may end up paying more over the life of your loan.
Another option is variable interest rate loans. With a variable interest rate, the rate can fluctuate from month to month. The rates are based on the average interest rate from your lender and the cash rate movements of the Reserve Bank of Australia.
The advantage of the variable rate loan is that you may get a lower rate when the economy is in good shape. However, you also have the risk of paying more when the interest rate rises.
Split rates are the third option. With a split rate, you pay a portion of the loan with a fixed rate. The remaining interest is covered by the variable rate. This provides a compromise between fixed rates and variable rates.
View a Detailed Home Loan Repayment Guide
You should also take a moment to review a guide on home loan repayments. This guide covers everything that you need to know before applying for a loan. You will learn more about the types of repayments, and you can find a repayment calculator to estimate your monthly payments.
You Can Still Get a Loan with a Bad Credit Score
People with bad credit often assume that they cannot get a loan. When you believe that you are unable to obtain a home loan, it is easy to continue paying expensive monthly rent for an apartment or home rental. The problem with rentals is that your monthly payments are not applied to your overall net worth.
You can still get a loan if you have bad credit. However, lenders will see your bad credit as a risk and will likely offer a higher interest rate.
There are a couple of ways to avoid a higher loan interest rate. You can save up and provide a more substantial down payment. In some situations, you may find favourable interest rates with a variable interest rate loan or by choosing a loan with a shorter length.
Obtaining a home loan can be a straightforward process. If you have any questions about applying for a loan, talk to a home loan specialist.