As a potential applicant, you’ll undoubtedly be experiencing a host of emotions as your mortgage draws ever-nearer. There aren’t many adults out there that won’t consider approaching a bank or a lender at some point for help with purchasing their first home – and this fact can be quite reassuring in and of itself.
Not only will you be in the same boat as thousands of others before you (and just as many coming after), you’ll also be expected to undergo the processes involved in much the same way as people that have enjoyed approval this year alone. But as reassuring as this might be; confidence will only get you so far, especially where your mortgage application is concerned.
Things to Think About
Before applying for a loan from a bank, you’ll undoubtedly want to set aside the time to ensure that you undertake the exact task as efficiently as possible. From learning about the differences between banks and their policies, all the way to the types of interest rates that they propose and how they could affect your repayments; you’ll want to cram in as much information as possible to maximise the likelihood that you’ll not only sign up to the right loan – but receive approval.
There are several things that you can do to maximise your potential and these relate to using online mortgage calculators, hiring mortgage brokers and keeping your options open when it comes to banks. First things first – now’s a great time to get to know what some of these features involve, how they work and why you should consider taking advantage of them.
These useful tools are often utilised by banks, lenders, brokers and applicants – and they can help you to get to grips with your cash borrowing potential.
There will even be a section for you to decide on the frequency of your repayments (either weekly, bi-weekly, or monthly), as well as an input field that will let you define the total period that you hope to pay back what you’ve borrowed. After a few tries you will soon notice that the longer this duration is, the less you should expect to pay back each month.
The main thing that you might want to pay attention to is the potential to borrow more than you expected by increasing the duration of your repayment schedule. Even though you will be expected to repay your loan for a longer period of time – the difference that the reductions in monthly payments can make can be very appealing.
These experts are finding themselves more and more in demand as the years go by. They are typically specialists in the financial field and there are two types to choose from. The first work alongside many of Australia’s leading lenders and will often receive commission whenever they sign applicants up to a new deal with a bank.
Independent brokers on the other hand will be far more likely to approach lenders based on their features and benefits – and as a result, they will often find the fairest deals available. It all comes down to what you are looking for as an applicant and the type of loan that you were hoping to be able to sign up to.
How flexible are banks?
Most banks will strive to keep their rates as flexible as possible – after all, they are still businesses that will want to enjoy a fresh influx of customers as frequently as possible. The fairer their loans, the more likely they will be to have applicants approach them. If both parties can agree on terms and conditions, then the potential for an agreeable deal will be a lot more prominent.
Say, for example, that a deal looks fantastic on all fronts and offers a fixed rate for two years, but may be prone to fluctuation after this time has passed – a broker could negotiate prolonged fixed rate terms, so that you as the applicant can enjoy a safer repayment period. This brings us on to our next point – the key differences between fixed and variable interest rates.
Interest rates are small percentages that are added onto the amount of a loan that’s due to be repaid. If a borrower receives $200,000 AUD from a lender for example – and you decide to sign up to a 3% fixed rate policy – over the course of twenty years you will be expected to pay back $833.33 a month, before interest.
With interest, this will add an extra 3% of the initial $833, totalling repayments of $858 per month (plus $25)
The main benefit of fixed rates is that if interest ever increases; those with a fixed policy won’t be put at risk. Likewise if they drop, they won’t be able to take advantage – but being able to know what you can be expected to pay back for a set amount of time can definitely be reassuring. This is one of the reasons why people opt for these types of loans.
On the other side of the coin you have variable rates and these types can be prone to fluctuation; hence them being a little risky as far as a borrower is concerned. If you decide to sign up to a mortgage that proposes an initial 2% rate, you might only be enjoying this low amount until the markets change and the bank is forced to increase their rates.
If you borrowed $200,000 for example, with a planned repayment schedule of twenty years at 2% interest, you’d only be able to secure your repayments for as long as the cost stays at this amount
That being said – the majority of loans taken out will propose variable repayment options, or they will revert to them when a fixed rate period comes to an end. As risky as it can be when costs might experience an increase; there’s always the potential for costs to drop if the market experiences a decrease in the factors that contribute to higher interest percentages.
A final thought before pursuing your application
Whether you’re planning on applying on your own, or under the guidance (and with the support) of an expert home loan broker – it is well worth thinking about a few particular things.
The more carefully that you prepare your documentation, the easier your lender will find it to get to grips with your borrowing potential. It’s also worth considering that jumping into the wrong deal because you are so keen to get a mortgage can actually affect your financial situation in the long run. Rather than diving in head-first consider your options, have an expert compare the possibilities and only agree on terms that you are entirely satisfied with.
Most banks will be willing to negotiate their terms and conditions – and as long as you can assure them that you will be able to meet your repayments, you can rest assured that they will consider your application seriously. Don’t overlook the potential of expert advice and we’d definitely encourage you to learn about your borrowing potential by using mortgage calculators and other free to use tools.
With these tips and techniques, you will be putting yourself in a much better position to sign up to a great deal. Unlike other loans that can last for as little as a few years, you will typically be expected to repay your mortgage for decades – so don’t rush in and be sure to weigh up all of your options before reaching a decision.