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The First-Timer’s Guide to Australian Home Loans (& How to Repay Them Quickly)

by Angilina
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What are the most popular reasons why people get a loan? Well, for me, it’s for acquiring a new house (regardless of whether you’re going to live in it, or you’re buying it for investment purposes). And, if you’re like most Aussies, buying a house is definitely an exciting stage in your life. However, it could also be one of the most stressful processes that you will undergo. So, here’s the first-timer’s guide to getting a home loan for investment property Sydney, and how to repay it quickly.

What’s a Home Loan?

Now, what is a home loan for investment property Sydney? Again, regardless of whether you’re getting a home loan for your family, or for investment purposes, your property is going to be one of the biggest purchases that you’ll make in your life.

And, when it comes to getting a home loan for investment property Sydney, having the right advice, and guidance, can literally help you to save thousands, or even tens of thousands of dollars.

While navigating the world of home loans may feel daunting and unnecessarily complex, it is actually a pretty straightforward process once you get to know the basics. So. Let’s start the ball rolling by discussing what exactly a home loan for investment property Sydney is all about.

Home loans are loans that are given by a bank or financial lender, in order to help people purchase a property for their families, or for investment purposes. To secure a home loan, you will need to have a deposit of at least 5%, although the average person in Australia  generally has a 20% deposit.

Your lender will then lend you the rest of the money to buy the house, which can range anywhere from 95% of the purchase price. On top of that, there will be additional costs to take into account like conveyancing, legal fees and stamp duties.

Once you take out a home loan for investment property Sydney, you will have to make regular payments weekly, fortnightly or monthly, across the length of the loan term. Down Under, loan terms generally range between 25 to 30 years, depending on how much you borrow, and how quickly you can make the repayments.

A home loan for investment property Sydney is about more than just borrowing money to pay off your new home or investment property. There are actually a couple of costs to factor in, all of which affect how much you will actually be paying off over the course of your loan.

The “principal” is the amount that you’ve borrower to buy your home, and have to pay back the lender. The principal amount reduces over time as you pay off your loan. Like for example, if you have a 20% deposit on a home that costs $1 million, the initial principal amount would be $800,000.

If you have already paid off $100,000 on that home loan, then the remaining principal amount would be $700,000.

The next cost to factor in when getting a home loan for investment property Sydney is the “home loan interest rate”. Interest rates are the cost that a bank or financial institution charges on your principal, which is computed as a percentage of the final amount that you’ve borrowed from the lender.

While the home loan rate of interest might look like a small percentage, this amounts however adds up over time because the interest is calculated on a daily basis. The average Aussie ends up paying almost the cost of the home in interest alone, which is why it’s crucial to find the right home loan product available, and review it every two years.

The next cost to factor in when getting a home loan for investment property Sydney is “lender fees and charges”. On top of the principal and interest rate, there are other charges and fees that are associated with taking out a home loan, and these vary depending on your lender.

Some of the most common lender’s fees or charges include monthly account-keeping fees, annual package fees, home loan application of processing fees, redraw fees or “break cost fee” which applies when you decide to exit the fixed term before it expires. Finally, there’s lender’s mortgage insurance, especially if you’re borrowing more than 80% of the property’s value.

The other extra fees that are associated with buying a property include a stamp duty (only if you’re not eligible for the stamp duty exemption), government registration fees, legal/conveyancing fees and miscellaneous costs like council, water and others (which are charged on a pro-rata basis).

How to quickly repay Your Home Loan

Now, what’s the best way to quickly repay a home loan for investment property Sydney? First switch to fortnightly payments. If you’re paying monthly. You could try considering switching to fortnightly payments.

By paying half the monthly amount every two weeks, you will make the equivalent of an extra month’s repayment each year, as each year has 26 fortnights (Hey, I didn’t know that!).

Second, make extra (or higher) payments, as this can reduce your mortgage by cutting your loan by years. Putting your tax refund or your bonus into your mortgage could also save you thousands of dollars in interest payments. So, ask your lender if there is a fee or not for making extra payments.

Third, find a lower interest rate. Work out which features of your current home loan for investment property Sydney you want to keep, and compare the interest rates on similar loans. If you find a much better rate elsewhere, then ask your current lender to match it, or offer you a much cheaper alternative.

If you decide to switch to another home lender, then make sure the benefits outweigh the fees or charges that you will pay for closing your current loan and applying for another. If you can switch to a lender who offers a lower interest rate, keep making the same payments that you had at the higher rate. You could also consider an offset account, which is a savings or transaction account that is linked to your mortgage, as this reduces the amount that you owe on your mortgage. And, you should also avoid an interest-only loan, because with this type of loan you only pay the interest on the amount you’ve borrowed. These loans are usually for a set period of time, like a five-year term. Your principal does not reduce during the interest-only period, which means that your debt is not going down, and you’ll end up paying more interest!

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