Selecting the right mortgage when you’re a first-time buyer can be challenging. You’re confronted with so many choices by the big banks and other lenders.
Speculation is building that mortgage rates will begin to fall within the next 12 weeks. After 18 months of increases, you may feel that this means now is the right time to act.
As an experienced real estate agency, we’ve witnessed many first-time buyers can struggle with such an important decision.
Selecting the right mortgage for your circumstances goes a long way to ensuring a successful homeownership experience.
Whether you choose to go directly to a lender or use a mortgage broker – as most buyers do – the most important thing is to ensure your deal is sufficiently flexible so that you are not penalised should your personal circumstances change.
The myriad of mortgage choices fall into three basic categories:
- Variable rate.
- Fixed-rate.
- Combination of both.
Understanding each one is essential when we are likely to enter a new period of interest rate movements.
Variable rate –
A variable rate is an obvious choice when pundits say rates are likely to fall from mid-year to the end of 2025. But nothing is guaranteed in life. Those on a variable rate would never have predicted the post-COVID inflationary spike or thought rates would jump so high so quickly. By selecting this option, you leave yourself open to the unexpected but get a cheaper deal.
Fixed rate –
The advantage of a fixed rate is consistency. No matter what happens, you will always pay the same mortgage fee through the terms of the agreement. Usually, these deals last from three to five years. While you offset your risk of higher payments even if generate rates are rising, you won’t benefit if rates fall.
Combination –
You can choose to have a percentage of your loan at a fixed rate and the remainder at a variable rate. It’s a neat compromise, giving you the benefit of a fall in the interest rate environment while guarding against unexpected economic shocks.
Below, we offer a few quick tips to help you find the right mortgage for your circumstances.
- Spending power – You don’t have to spend the entire loan that your lender provides. You may want to hold some funds back for future renovations. A more conservative approach will mitigate against financial risk and give you more money for day-to-day living.
- Offset account – Talk to your lender or broker about the options of an offset account, which are typically only available with variable loans. In this arrangement, your savings sit against your mortgage debt, minimising the interest it accrues.
- Fortnightly payments – You’ll pay off your loan faster if you pay your mortgage every two weeks instead of monthly. It’s an effective and relatively pain-free strategy.
*This article is general in nature and not intended as financial advice. Readers should make their own decisions based on their specific objectives and financial position and only after consulting such independent advisors as may be necessary.