Get to know the pros and cons of the different mortgages out there when buying your first home.
With all the different types of mortgages and loan features available, it can be really tricky to figure out your best option for a home loan. And when you’ve never had a mortgage before, it’s especially hard to know what will work best for your situation.
Our expert Aussie broker Bis Anderson, has arranged loans for many first-home buyers. She’s very familiar with different types of loans and how they can deliver benefits and savings for each buyer’s own circumstances and needs.
Keeping it basic
“For many young tech-savvy buyers, a basic mortgage is all they need,” says Bis. “With 24-hour access to their loan account through online banking, they can take advantage of a free redraw facility to top up their mortgage to save interest, or withdraw extra funds when they need them.”
These basic types of loans can be appealing to first-home buyers because they usually come with lower fees. Because there are no extra products included with the loan, the ongoing cost of the mortgage is usually lower.
Mortgage packages – all the bells and whistles
Package mortgages on the other hand, will often include an offset account and a credit card, plus a discount on the variable interest rate for the life of the loan – all included for an annual fee.
“Package mortgages are better suited to people wanting to build equity and who have a higher volume of income in their offset account,” says Bis. “If you can keep a balance of at least $10,000 in there, you’re going to do well with interest savings. An example of this is if you can deposit your salary into your account, live on your credit card and then pay it off in full each month, you’d be making the most of all the features of your mortgage package.”
Getting help from a guarantor
Another, much less appealing, mortgage feature that first-home buyers need to be aware of is Lender’s Mortgage Insurance (LMI). It’s a one-off insurance premium paid by borrowers to protect lenders if you stop repaying your mortgage. If you’re borrowing more than 80 per cent of your home’s value you may be asked to take out LMI. And this is where getting a guarantor involved – usually a family member – can help you avoid this extra cost and buy your first property now, instead of waiting while prices rise.
“If you don’t have a 20 per cent deposit for your first home, using equity in a family member’s property can help avoid LMI,” says Bis. “We can look into structuring a family guarantee loan to enable earlier release of the guarantor security. There’ll be a guarantee period as part of the contract, and during that time the family member won’t be able to sell their property which is important for them to know.”
In situations where it’s not possible to act as a guarantor, family members can help by offering rent-free accommodation so buyers can save faster to reach their deposit target.
Getting help from a broker
With so many mortgages to choose from, going to a broker can save buyers from spending time researching lenders and their products.
“A good broker will ask all the right questions to get an understanding of what your priorities are and what sort of loan you need,” says Bis. “At Aussie, we have access to 21 lenders and over 2,000 different types of loan. Our research and your application are all done at no cost to you and you’ll never have to chase us about your mortgage application. We’re always communicating, keeping you informed about your options and how your application is going, right up until settlement and beyond.”
Are you looking for a mortgage to buy your first home? Share your thoughts in the comments below.