Understanding mortgage terms for first time buyers
Entering the property market as a first time buyer isn't the easiest venture you'll ever undertake - not least because of all the terms you have to understand before you start house hunting!
One of the main things to learn is all the different types of mortgages. For the most part, there are three mortgage options that will suit your situation when buying a house, and it's simply a matter of talking to your lender to decide which one is best for you.
In the meantime however, you can start by reading up on the basics of fixed rates, variable rates and split rates to get an idea of each one and perhaps even what might best suit your needs.
Fixed mortgage rates, or fixed rate home loans, refer to the amount of interest you will be charged on your initial loan amount.
When the interest rate is fixed, it means that it will remain 'locked in' for the initial loan period of one to five years. This can be a great benefit for those who want to know exactly how much they'll be paying each week, month and year for the foreseeable future without any surprises.
The downside of a fixed mortgage is that if a bank's interest rate drops, then your rate will remain the same and you won't benefit from the decrease. On the other hand, you won't be charged extra when the interest rate rises either.
A variable mortgage is essentially the opposite of a fixed rate home loan.
This option will see your interest rate rise and fall as your bank's lending rate fluctuates. This can work in your favour or against it, depending on the financial climate at the time.
Usually a bank will change their rates when the official cash rate from the Reserve Bank of Australia is altered.
While benefits of this form of mortgage may see you save on interest payments when the rate falls, it may also see the rate rise, which will mean that your budget will have to be flexible enough to accommodate for those changes.
A split mortgage is simply a split between a fixed and a variable rate.
In this case, you opt to borrow a portion of your loan at a fixed rate for the benefit of stability, while the rest is lent on a variable rate basis, allowing you to leave room for flexibility.