Things To Consider Before Getting A Home Loan In Australia
Generally, home loans are funds provided by banks and accredited lenders to you so you can purchase a house or property. As part of the terms of the loan, you're required to pay it back within the agreed timeframe. Usually, this involves making regular repayments on a weekly, fortnightly, or monthly basis.
In Australia, the loan terms generally range from about 25 to 30 years. But, keep in mind that this will also depend on various factors, such as the bank or lender's terms, the amount of your loan, and your ability to make repayments.
Aside from the required payments, there are also other factors that you have to consider when it comes to applying for a home loan. In this guide, we'll provide you with everything you need to know about this type of loan. Taking into account these factors can help you make the most of your loan experience and avoid potential problems in the future.
What are the different types of home loans in Australia?
Before taking out a loan to purchase a house, one of the first things you have to think about is the type of home loan that you can apply for. Although there are various types of home loans available in Australia, the three below are the most common ones you'll encounter.
Fixed-rate home loans
As its name suggests, a fixed-rate home loan has a fixed interest rate for a certain period of time. For instance, you might be given the option of applying for a fixed-rate home loan that has an interest rate of 2.86% per year over a period of five years. This means that you'll still be paying the same rate even if the interest rates change within the specified timeframe.
The main advantage of getting a fixed-rate home loan is that it provides more stability and certainty when it comes to settling your repayments. This allows you to easily manage your finances and create a budget to repay your loan.
Unfortunately, due to their nature, fixed-rate home loans are inflexible. Even if the interest rates go down, you still have to pay the same amount. Also, in most fixed-rate home loan terms, you're not allowed to make additional payments or sell your property before the term ends. Otherwise, you might end up paying additional fees.
Variable home loans
Another type of loan that you can get in Australia is a variable home loan. Unlike fixed-rate home loans, the interest rates of variable home loans will vary according to the changes in the interest rate market.
In other words, if the Reserve Bank of Australia announces that the official cash rate of the country will increase, the interest rate of your loan will also increase. But, it will also decrease if the interest rate falls. Keep in mind, though, that the amount at which your interest rate will increase or decrease will vary depending on your bank or lender.
Compared to fixed-rate home loans, variable home loans are much more flexible. Of course, as explained earlier, this type of home loan's flexibility can be good or bad depending on the national interest rate trend. Although it can be harder to plan a budget due to the possibility of the interest rate to fluctuate, you're allowed to make additional repayments if necessary if you get a variable home loan.
Split Home Loans
If you're looking for something in between these two types of homes, then your best choice is to apply for a split home loan. This is a combination of variable and fixed-rate loans, where a part of your loan follows the terms of the former while the other has the terms of the latter.
This is an ideal choice as it allows you to have the option of making the portions of your home loan repayments both certain and flexible based on market changes.
What are the usual fees associated with home loans?
In addition to your regular repayments, there are also other fees that you have to settle when getting a home loan. All of these fees are related to the processing of your loan. Being knowledgeable about these additional costs can help you prepare yourself and your finances as you start your loan application.
These fees are the costs you have to pay at the beginning of your loan. They refer to various matters, and sometimes, banks and lenders can waive some of these fees to promote their offering and entice more customers to apply for loans.
One of these is the application or start-up fee, which is a one-time fee that you have to pay for the processing and documentation of your home loan. The exact amount of this fee can vary depending on your loan terms.
Another additional cost that you'll most likely encounter when getting home loans is a property valuation fee. This fee is charged by lenders so they can assess the value of the property that you're planning on purchasing. For home loans, the valuation process is necessary as it ensures that the amount you're planning on borrowing and your deposit are appropriate according to the property's value.
The other upfront fees that you'll probably come across are conveyancing fees, government charges, legal fees, mortgage registration fees, search processing fees, and lender's mortgage insurance. Although these seem to be a lot, you can be sure that these fees are utilised to ensure that the processing of your loan goes smoothly.
Aside from your monthly repayments, you might also get charged for other ongoing fees during the course of your loan term. But, there are banks and lenders in Australia that won't charge ongoing fees.
One of the most common ongoing fees is a monthly service charge. This covers the cost of servicing and administering your home loan. Depending on your bank or lender, this can usually cost around $5 to $15.
Sometimes redraw fees are also charged by lenders that offer loans with redraw features. This means that you can withdraw the additional payments you've made for your loan. But, in order to take advantage of this feature, you'll typically have to pay for redraw fees.
You can also be charged a late payment fee if you fail to make a repayment on or before the due date. Like other fees, late payment charges can vary depending on your bank.
If you decide to switch to a different type of home loan from the one that you currently have (ex., a fixed-rate home loan to a variable home loan), then you'll most likely have to pay a switching fee.
Upon reaching the end of your home loan term, your bank may still charge you additional fees. There are different types of exit fees that you might encounter. One of these is the home loan exit fee. Although this was already banned in July 2011 during the time of former Prime Minister Julia Gillard, you can still be charged a home loan exit fee if your loan was issued before this period.
On the other hand, discharge fees are presented to cover the completion of the entire loan process and related paperwork if you have settled your loan in full. These fees, which are also called settlement or termination fees, usually range from around $150 to $400.
If you decide to pay off your loan in full within the period specified by your bank or lender, you'll mostly be required to pay an early exit fee. According to current laws, early exit fees are limited to the recovery of the loss of a credit provider, which can be caused by an early exit from a loan.
A fixed-rate break cost is comprised of the discharge and early exit fees. This is usually imposed if you break a fixed-rate loan contract by either exceeding the limit on additional repayments, fully repaying the loan, or transferring to a different product.
How do you apply for a home loan?
Now that you have a good grasp on the nature of home loans, you're now ready to apply for one. Although applying for a home loan can be a straightforward process that involves contacting your preferred bank or lender and asking how to get one, there are a couple of things that you have to keep in mind.
What is the application process for home loans?
One of the first things that you need to do to start your application process is gather all of the necessary documents. These documents are required by lenders so they can determine if you are eligible for a home loan.
Once you've made sure that you have all the required documents, do a background check on your preferred home loan providers. This process involves assessing the different types of loan options that they provide.
In addition to verifying their credibility, make sure to thoroughly check their repayment terms and the various fees associated with their loans. By doing so, you'll be able to narrow down your choices and identify which provider has the best loan option and terms for your needs.
After submitting your application, the lender will start processing it. This step involves evaluating the property that you are planning on purchasing with the loan. Once the lender has approved your application, they will let you know and send you an offer.
If you agree to all of their terms, then the loan or funds will be issued to you.
What are the requirements for applying for a home loan?
As mentioned earlier, you need to gather the necessary documents to start your application. These can include a government-issued ID, proof of income, bank statements, employment records, credit history, and other documents that lenders can use to verify your identity and determine if you are financially capable of settling your loan.
Apart from submitting these documents, you might also be required to put up a house deposit, which is a percentage of the total purchase value that you are looking at offering.
Although all of these tips are important when it comes to applying for a home, probably one of the most vital things you have to remember is to make to get your loan from a reputable lender or bank. Doing so can prevent you from encountering legal and financial problems in the future.
BankWAW is a reputable and trusted community-owned credit union that offers various loan options to eligible clients. We provide home loan packages with variable or fixed interest rates. In addition to zero account-keeping fees, we also offer flexible repayment options.
As a community-owned bank, we are dedicated to helping our members build better lives and achieve financial growth. Apply for a home loan with us today and learn how we can help you acquire your dream house.