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When it comes to relocating as a first-time buyer or experienced homeowner, there are several factors you must familiarise yourself with ahead of time. One of the most important, however, is a home loan.
A home loan, otherwise known as a mortgage, is a contract that allows you to purchase a property without the need to part with the entire cost of the home upfront. A relatively major money milestone, it requires substantial investment and financial planning beforehand.
Continue reading to find out everything you need to know about home loans.
Interest rates
Before you even consider applying for a home loan, you must research interest rates. With the option to choose from a variable rate or fixed rate home loan, you should weigh up the pros and cons of each before making an informed decision.
A variable interest rate, otherwise known as an adjustable interest rate or a floating interest rate, fluctuates over time based on a predetermined interest rate. It may also take into account a number of external factors laid out by your bank.
One of the main benefits of a variable interest rate is greater flexibility. A fixed rate interest rate, on the other hand, differs in that repayments are fixed for an initial period of time and remain unchanged during that period.
When the fixed rate period has ended, the loan will revert to a standard variable interest rate, and you can benefit from the benefits associated with a floating interest rate.
Repayments
As well as familiarising yourself with interest rates, you must also research repayments. Your home loan with require either principal and interest repayments or interest only repayments.
With principal and interest repayments, a small portion of your repayment will contribute towards the interest charged on your loan whilst the remaining portion will contribute towards the initial amount borrowed.
The goal of a principal and interest repayment is to allow homeowners to meet their repayment obligations within a shorter timeframe and repay their home loan in full as the loan term comes to an end. An interest only repayment, on the other hand, are issued for a specific period of time.
During this period, your repayments cover the interest charged on your loan only. For example, you are not required to contribute towards the initial amount borrowed. If your repayments remain interest only for the entirety of your home loan, you must repay the initial amount borrowed as your loan term comes to an end.
Fees
If you are considering a Citibank Home Loan, you must familiarise yourself with the fees involved throughout the entire process. Each home loan provider differs but common costs may include establishment fees, ongoing fees, discharge fees, and early exit fees.
You must weigh up the pros and cons of each option before you make an informed decision. Establishment fees, otherwise known as application fees, upfront fees, start-up fees, one-off fees, or set-up fees, refers to a fee charged as your loan commences and covers the cost to the lender of arranging and administering your home loan in the first place.
Ongoing fees, otherwise known as service fees or administration fees, are fees billed on a regular basis, such as monthly or annually, throughout the duration of your home loan and covers the cost of maintaining your home loan for a specified period of time. Discharge fees, on the other hand, are charged by your lender as your loan term comes to an end and your repayments have been made in full.
It covers the legal and administrative cost of releasing you from your home loan. Finally, early exit fees, otherwise known as early termination fees or deferred establishment fees, may or may not be charged by your lender if your home loan is repaid within a specific period of time. Timeframes can differ from lender to lender, but this is usually within five years.
Consider insurance cover
As well as researching interest rates, repayments, and fees, you must also consider insurance cover. This can protect you in the event of an accident or emergency and cover the cost of your home loan repayments each month if you lose your job or become unwell.
The payout period differs from provider to provider but most policies cover you for a maximum of 12 months. You may also require insurance cover if you are self-employed as you are less likely to be eligible for sickness or redundancy pay if the worse was to happen.
When it comes to moving, you must familiarise yourself with the financial options available to you. A home loan, in particular, should top your list of priorities. But with so many factors to consider ahead of time, it can be difficult to know where to begin. If you are unsure, research interest rates, repayments, fees, and insurance cover.
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