Apply For Finance

Apply For Finance

All of our homes are built ready to be moved into and conveniently located in areas with proven historical capital growth;
close to schools, shops, freeway entries and the Transperth railway network.

Step 2: considering your options

Apply For Finance

Obtaining finance can be an overwhelming step for many people – but it needn’t be! We’ve helped countless Western Australians get finance for their first homes and investments. We often notice that the fear comes from confusion. Once you become more knowledgeable on the subject, it becomes far less daunting.

The ideal place to start when considering your options for finance is to look at the different types of loans available. By understanding each of the alternatives, you will be able to decide which one is right for your personal situation and financial capacity. Here are some of the most common types of home loans:

Variable rate loan – in a variable rate loan, the interest rate goes up or down in line with the cash rate, set by the Reserve Bank of Australia. This means your repayments will change from month to month. When the cash rate increases, you’ll have to pay more interest. When it decreases, you’ll pay less. A variable rate loan also gives you the ability to pay off your mortgage faster through features like extra repayments, a redraw facility and an offset account. If you want to refinance on a variable rate loan, you usually won’t have to pay a fee.

Fixed rate loan – in a fixed rate loan, the interest rate stays the same for a set period, typically the first 1-5 years of the loan. It is usually at an amount above the current variable rate. After the initial period, the loan reverts to a variable rate. A fixed rate loan gives you a chance to lock in a low interest rate for the first few years. Even when the Reserve Bank’s cash rate increases, your repayments will remain the same. The downside is that it doesn’t come with the same features a variable rate loan offers, such as an offset account or the ability to make extra repayments. Additionally, lenders often charge a fee for you to refinance or change to another home loan.

Split rate loan – as the name suggests, a split rate loan is divided into two. To start with, a portion of the loan is paid using a variable rate; the other, a fixed rate. When the allotted period ends, the loan continues on a variable rate. The fixed part of the loan would protect you against a rise in interest rates, while the variable portion would give you the same benefits as a variable rate loan, such as the ability to make extra repayments.

Interest only loan – for an interest only loan, you only repay the interest for a set period, as opposed to repaying both the interest and the amount you borrow. After the period ends, you must begin paying back the principal. This means there are lower repayments to start with, but the interest rate is typically higher than a loan requiring you to repay both from the beginning. As such, you will pay more over the lifetime of the loan.

Low-deposit loan – a low-deposit loan lets you borrow more than 80% of a property’s value. This loan is typically for first home buyers because it allows you to enter the property market without spending years saving up for a deposit. In fact, some low deposit loans will enable you to borrow up to 95% of the property’s value, meaning you only need a small amount for a deposit. The downside of a low deposit loan is that you will be required to pay lender’s mortgage insurance to protect the lender in the event you fail to repay the loan.

Guarantor loan – a guarantor loan differs from most types of loans in that an existing homeowner, usually a parent or guardian, uses their own property to guarantee the cost of the loan. This can be a fantastic option for first home buyers, as it enables you to buy a house with little to no deposit at all. Once you’ve repaid a part of the loan (usually 20%, the same amount as a typical deposit), or when your property increases in value, the guarantor can be removed from the loan. Another advantage of having a guarantor is that you can gain approval for finance without having to pay lender’s mortgage insurance, which could save you upwards of $10,000 over the lifetime of the loan. Another advantage of a guarantor loan is that they often come with relatively low interest rates.

Finding The Right Lender

Once you understand the different types of loans available, it’s time to approach lenders. This is where many buyers make a crucial error. Instead of investigating their options, they head straight to their bank and sign the first loan they are offered. This can be dangerous, as there are numerous pitfalls in dealing directly with the banks:

  • Banks understand the influence they have over their existing customers. Most people find it convenient to deal with the same financial institution for all their loans and accounts. Because of this, banks often give more attractive rates to new customers instead of rewarding loyalty.
  • Many home buyers remain with the same bank for the entirety of their loan. This often leads to missing out on favourable deals that become available as rates change over time. Doing this could end up costing you tens of thousands of dollars over the lifetime of your loan.
  • Banks are experts at pretending they have the perfect loan for you, when in reality there may be better deals available with other lenders. Remember, bankers work for the bank – not you. They may steer you towards a loan that’s in the best interest of their employer, instead of something that’s best for you.

For these reasons, it’s essential to investigate multiple options before signing a home loan. You can ask each lender for a key fact sheet, which lists out the important aspects of each loan in a single document. This will make it easy to compare options and find the best fit for your situation.