Competitive home loan offers are heating up the market. It could be a great time to take advantage of cash back offers, introductory rates, and reduced fees.
What are the different types of home loan offers?
The most common types of home loan offers Aussie borrowers can take advantage of include;
Home loan cash back offers
A cash back mortgage offer means you’ll receive a certain amount of money back from the lender when your home loan is finalised.
An enticing incentive, the extra cash is yours to spend as you like. Buy new furniture, a holiday, or put it towards paying down your mortgage.
The lender may offer cash back as a percentage of the amount you’ve borrowed or up to a fixed dollar amount.
For example, $2,000 cash back for mortgages starting at $250,000 or 1% cash on mortgages up to $350,000.
Most lenders will deposit the money in your account on your mortgage settlement day. You may need to open a transaction account with the lender to receive the funds.
Introductory interest rate mortgages
An introductory interest rate mortgage gives borrowers a discounted mortgage interest rate for a certain period of time.
This discount starts when the home loan begins. Depending on the offer, it may last anywhere from 6 months to 2 years.
After the discounted period ends, the interest reverts to the “ongoing rate” which is higher.
The benefit of an introductory interest rate home loan is smaller repayments during the discount period.
This means you can;
- Ease into your new mortgage repayments.
- Free up cash for other goals like paying off other debts, investing, or saving.
Waived fees and rebates
Common home loan offers include lenders waiving standard fees or costs usually associated with a mortgage. For example;
Rebate on conveyancing fees
These fees can range anywhere from $500 – $2,500. Getting a rebate on conveyancing means reducing your upfront costs of a property purchase.
No annual fees
Lenders usually charge an annual fee for the mortgage of around $300 – $400. If an annual fee of $300 was waived for a 25 year mortgage you’d save $7,500 over the loan’s lifetime.
No monthly fees
The fees to administer your home loan can range from $5 – $15 a month. You can save thousands in the long run by not paying these fees.
Other fees lenders may discount or waive include switch fee, portability fee, redraw fees, and repayment charges.
Reduction in Lenders Mortgage Insurance (LMI)
Lenders usually charge LMI on home loans with a loan-to-value ratio (LVR) that’s greater than 80 per cent.
Essentially, if you don’t have a 20% deposit, you’ll generally be liable for LMI.
A once off payment added to the loan, LMI protects the lender if you default on your repayments.
LMI can add a significant cost to the loan. Home loan offers that reduce this expense can be very attractive for borrowers with small deposits.
Is a home loan offer right for me?
Smaller repayments for a few years, extra cash in your pocket, no fees, and lower LMI. They all sound great.
However, it’s important to crunch the numbers to see if you’re getting the best loan option in the long run.
Keep these things in mind when considering home loan offers;
Is the interest rate competitive?
Look past the initial benefits of the loan offer. To come out ahead, the long term interest rate should be competitive. Especially for introductory interest rate mortgages.
Consider the rate the loan will revert to once the “honeymoon” period of an introductory loan is over. If the revert rate is high, you could pay more interest in the long run compared to other home loans without an introductory offer.
Home loan cash back offers with a high interest rate may also work out more expensive over time. The good news? With competition heating up in the market more lenders are offering cash back on their loans with the lowest interest rates.
It’s all about doing your homework to come out in front.
Can you handle higher repayments?
Home loan offers with introductory rates may have a jump in repayments when the introductory period ends and the new rate kicks in. Make sure you can comfortably afford the increase.
Some introductory offers also revert to a variable interest rate for the remaining term. This means your repayments will also fluctuate after the introductory period.
Is loan flexibility important to you?
Some mortgage deals can be more restrictive.
They may not offer features like extra repayments or redraw options. Consider the flexibility you’d like for the life of the loan, not just low repayments on the introductory term.
Your home loan options
Making your first big step towards buying a home? It's crucial to be across your mortgage options as a first homebuyer.
Opting for a variable interest rate on your home loan means it'll fluctuate as the market moves throughout your repayment term.
On the other hand, fixing your rate locks it in for a pre-defined period. This can bring with it greater certainty around your budget.
It's important not to set and forget when it comes to your home loan. If you find a more competitive offer, it may be worth refinancing.
If you're looking to build a new house, construction loans are specifically designed to cater to the different needs associated with doing so.
A guarantor essentially acts as a safety net for your lender, as they sign onto your loan to agree to pay it off should you become unable to do so.
Purchasing a property as an investment brings with it different specifications from a lender. It's crucial to know what your options are.
Businesses big or small may wish to purchase a property for commercial purposes, which are also different from a standard loan.
Your home loan may give you an interest-only option, which allows you to exclusively pay interest on your loan for a set period.
Just because your finances may be slightly more complicated as a self-employed individual doesn't mean you can't take out a home loan.
Some lenders may allow you to apply for a home loan with alternative documents, such as tax returns, BAS and ABN registration.