- Principal: The dollar amount that is borrowed as a loan
- Interest Rate: The cost of borrowing money expressed as a percentage
- Loan Term: How long do you have to pay the loan back
- Deposit: This is the original payment you are making to your lender when you borrow, usually between 5% and 20% of the total amount.
- Lenders Mortgage Insurance (LMI): LMI is an insurance component that a lender may force me to accept in my loan contract if my deposit is less than 20%, basically an extra layer of insurance to protect your lender.
Types of Mortgages for First Homebuyers
There are many mortgages in Australia, as there are many different financial positions or opportunities in home ownership that different borrowers might have. Below is a list of the different types of mortgages that are generally available.
1. Fixed Rate Home Loans
A fixed-rate home loan gives you, the borrower, a guarantee on the interest rate for a certain amount of time (usually between one and five years). Your repayments are going to remain constant during that period of time, while RBA standard rates may rise, fall lower or even stay the same.
Advantage:
- Predictable repayments
- Good for budgeting and security
Disadvantage:
- Less flexible regarding repayment of extra money/spending vs the threshold of normal repayments
- It will not benefit you, the borrower, with a decreased standard rate from the RBA system.
2. Variable Rate Home Loans
By taking a variable-rate loan, you will have an interest rate that is impacted by the market. ( is based on changes to the RBA cash rate and changes by other lenders).
Advantages:
- You gain flexibility, as well as ease of refinancing or additional repayment options
- You benefit from lower repayments when the rates are lower
Disadvantages:
- Your payments increase when the rates increase
- Not as secure when not budgeting as fixed-rate mortgages
3. Split Loans
The name would suggest that split loans generally are a split mortgage with a blend of fixed and variable elements. Often for borrowers seek an optimal, secure element of loans and flexible options.
Advantages:
- Great fixed protection, but the flexibility of variable payments
- Certainty in dealing with a market economy that continues to be unpredictable
Disadvantages:
- It can be a little confusing
4. Low Deposit and First Home Guarantee Loans
The government has a way of helping Australians enter the property market quicker with approval under the Home Guarantee Scheme that offers established first home buyers the ability to buy a property with a 5% deposit without lenders’ mortgage insurance (LMI).
Benefits:
- Get into the property market soon
- Save thousands in lenders mortgage insurance
Disadvantages:
- As above, it can be capped with prices and availability
- Criteria must be met for offset accounts and redraw facilities
5. Offset Accounts and Redraw Facilities
An offset account is an extra account that is linked to your home loan, and any funds you have in the offset account (up to 100% of the loan amount) will offset the interest charge on your home loan. For example, if you have a loan for $600,000 and in your offset account you have $20,000, you are only paying interest on $580,000 of the home loan. In Financial Services will also structure your loan terms and offset account for you, in a way that you are saving the most amount of money over the term of the loan.
Government Assistance for First Home Buyers
There are numerous programs that are offered by either your state or federal government that will assist a first home buyer with the upfront cost of purchasing their first home.
- First Home Owner Grant (FHOG) – This program is available throughout the majority of states when purchasing a brand-new property.
- Stamp Duty Concessions – Eligible buyers may receive a partial discount, or potentially a full waiver of the stamp duty that would have otherwise been payable.
- First Home Super Saver Scheme (FHSSS) – This is a program that allows a first home buyer to boost their deposit by utilizing their superannuation funds.
You may also choose to ask your mortgage broker if any type of assistance funding is available to first home buyers, and help you if eligible, to assess or apply for the programs.
How to Work Out the Best First Home Buyer Loan Option for You
In the end, the best first home buyer loan option is based on your financial goals, lifestyle, and longer-term vision – below is the process.
- Budget – ensure you are aware of your income, expenses, and deposit amount –
- Consider flexibility v stability – depending on your comfort level, the next decision is to choose fixed, variable, or split rates
- Review four options – just remember that the interest rates, fees, and features will all vary, whilst you review all the options available in the market.
- Ask a Professional – experienced mortgage brokers will be working for you as the borrower and undertake the comparisons and negotiate on your behalf to get you the best borrowing rates available.
Choosing between the different home loan choices for first home buyers starts with understanding your financial situation and long-term goals.
Make your First Home journey easier with In Financial Services
Purchasing your first home can be an amazing experience, filled with excitement and joy. We hope that by being informed and knowledgeable about your home loan choices for first home buyers, loans and mortgages, you find the journey just as exciting.
At In Financial Services, we support first home buyers through every aspect of the journey. Whether it’s helping you secure a property that you are wishing to purchase, or asking what other safe places offer the best lifestyle. We make sure every buyer receives the most appropriate lender option for their financial future based on their lifestyle and financial statements.
Ready to take the next step? Contact our mortgage brokers to discuss your home loan options or explore our home loan calculators to estimate your borrowing capacity before you apply.
