Doing your research when it comes to the different loan types is an essential step, as you want to make sure you fully understand what your bank/broker means when they suggest different interest rate scenarios. Personally, I always recommend being fully armed with as much knowledge and education as possible before even thinking about entering into any loan agreement!
When looking into the different types of loans you can apply for, it’s also super important to be realistic with yourself about what your ability is to repay it without extending yourself too much. At the end of the day, you need to be comfortable with your repayments – never push yourself past your limit! Sometimes baby steps are the way to go when you’re first starting out.
So, what type of loans are there? To help you find your feet, I’ve put together a quick overview below.
Variable Rate Loan
A variable rate loan means the rate will move up and down in line with prime lending rates. This means your monthly repayments can vary widely during the overall term of your loan. When budgeting for your loan repayments, you should always allow for possible future rate rises.
Fixed Rate Loan
This loan locks you into a set interest rate for a specific period (usually 1-5 years). Your repayments will remain the same over this course of time.
A split loan basically divides your loan into fixed and variable rate portions. It combines your home loan with an everyday transaction account from which you as the borrower can draw cash from, up to a pre-approved limit.
Low Doc Loans
These loans are super useful for borrowers who are unable to provide conventional income
documentation, or for people with complex structures.
Now, when it actually comes to acquiring a loan, your borrowing power will be based on a number of factors, and it’s important you understand how each of these can impact you. Knowing ahead of time what lenders are looking for will help you avoid making costly mistakes that may negatively impact you when it does come time to apply for a loan.
There are a whole range of things lenders look at when considering whether or not they will give you a loan, as well as how much they will be willing to lend you. These include things such as your income, debts, financial commitments, credit history, loan type, employment history, savings, stability of residence & assets.
Don’t forget – lenders have access to everything, so if you have something to hide, they’ll find it! I always recommend being upfront and honest about anything that might not look so favourable.
Have a question? Feel free to leave it below for me to answer!
Until next time,