Author: Vidhu Bajaj, from HashChing


Planning to buy your first home. Congratulations!

But, here is a question… have you done your groundwork?

In addition to choosing the right property for yourself, the right home loan is as important to finance your purchase. Do you know how much you can afford to borrow (calculate here) or which kind of home loan is the best for you?

Buying your first home is an exciting experience. However, it is also stressful for many home buyers who find themselves struggling to make sense of the complicated financial products and jargon in the market. If you find yourself wondering how to handle your first mortgage, here’s a rundown of the most important things you should know before taking out your first home loan:


Fixed or variable rate?

There are two main kinds of mortgages every home borrower must know about. These are fixed rate mortgages and variable rate mortgages. The main difference between the two types of mortgages is that with a fixed-rate mortgage, you know the amount of your monthly repayments for a fixed tenure. However, when you take out a variable rate mortgage, the interest rates are set by individual lenders, which means the rates can increase at any time. Of course, the rates could also decrease, which would benefit you by reducing your repayment amount.

Another major point of difference is the financial flexibility associated with a variable rate home loan. Fixed rate mortgages usually do not allow additional repayments. Besides, there might be an exit fee to be paid if you plan to refinance or sell the property before the fixed term ends.

In case you wish to have the best of both the worlds – the peace of mind that comes with fixed repayments and the flexibility of a variable rate home loan, you could opt for a split rate mortgage. Learn more about partially fixing your home loan here.

Once you have decided upon the type of mortgage, here are a few extra features to consider to help you manage your mortgage better.

Additional repayments – Does your home loan allow you to make extra repayments? If so, how many extra repayments can you make in a year without incurring a fee? Windfall gains such as a bonus, gift money, tax refund, etc. can be applied towards your mortgage to reduce your debt quickly. Use this extra repayment calculator to see how small amounts regularly applied towards your home loan can make a big difference to your pocket.

Mortgage redraw facility – It is true that you wouldn’t want to extend your mortgage under normal circumstances. However, it is usually better to redraw the additional money you have pumped into your mortgage instead of taking a personal loan for a holiday or a renovation. This is because personal loans charge a much higher rate of interest than your home loan.

Offset account – An offset account is like a savings account linked to your mortgage. The best part is that the money you stow away in your offset account is used to reduce the interest on your home loan. In simple words, the interest on your outstanding home loan is calculated after subtracting the sum in your offset account from the total outstanding principal. For example, if you owe $300,000 to the bank and hold $50,000 in your offset account, the interest would be calculated only on $250,000.

Boost your savings to own your home sooner

Buying a home is a decision that will affect you financially and emotionally for years to come. Thus, it is crucial to understand your options correctly and make informed choices so that you can service your home loan without sacrificing on the necessities.

Especially when you are planning to buy a home, it pays to be on the top of your finances. You can use this budget calculator to track your expenses and make a budget for your family that will help you save quickly for a deposit. Small changes such as swapping your Starbucks latte for a home-brewed cup of Joe could save you a substantial amount of money that could be applied towards your deposit or your mortgage once you have purchased a home.

Did you know that buying a home and owning it are two different things? Unless you’ve paid the last cent off your home loan, the house does not really belong to you. Thankfully, it is possible to pay off your mortgage faster through simple hacks such as making fortnightly repayments instead of monthly. In case you haven’t checked the interest rate you are paying on your home loan, there might be a more competitive deal you could switch to, potentially saving yourself a lot of money in the bargain. (Learn more about refinancing here.)

At HashChing, you will find hundreds of competitive fresh and refinancing home loan deals from over 60 lenders across Australia. Besides, if you seek financial guidance, you can find a verified mortgage broker in your local area here or directly post your queries online to have them answered by experts in a transparent manner. Your information is safe with us; we promise you won’t receive any unwanted calls or emails.

HashChing is Australia’s first borrower-friendly online mortgage marketplace offering broker pre-negotiated home loan deals that are often much cheaper than lender advertised rates elsewhere. Learn more by visiting HashChing today ~>

Disclaimer: while due care is taken, the viewpoints expressed by contributors do not necessarily reflect the opinions of Your Investment Property.