Everyone has a dream house, and the only thing that stands between them and their house is a large sum of money. Mortgages aren’t as complicated as they may seem, and with the right advice, your dream isn’t far from reality.
Navigating the financial world can be difficult, especially with a range of rates to consider. For the best rates, one should enlist the services of a reputed and proactive mortgage broker in Sydney!
Mortgages vs Loans
A mortgage is a loan for which there is collateral placed. Mortgages usually finance home purchases, and if the debtor fails to pay his dues, the creditor or crediting institution claims ownership of the said home.
On the other hand, a loan is a transaction in which the debtor agrees to pay his borrowed amount. This promise is legally protected and upheld by the state.
Essentially, a mortgage is a loan, but a loan isn’t necessarily a mortgage.
How do Mortgages work?
Once the institution receives the filled forms, it needs to approve the mortgage. Approval depends on multiple factors such as a stable income, a reasonable debt-to-income ratio, and a good credit score.Â
After approval, the debtor receives the sum and then pays it back over time. There might be a downpayment and a series of repayments (regular periods such as fortnightly, monthly, bimonthly, and so on are specific to the agreement) used to pay the sum along with interest.
Duration of Mortgages
The agreement decides the duration of the mortgage. Scheduled repayments may be weekly, monthly or annually. This scheduling of repayment or Amortisation is a crucial part of the mortgage process.
The longer the term, the smaller the repayments are, but the interest rate is high. On the other hand, short payment terms have larger repayments with lower interest. The latter option can help you save a lot in interest, but not everyone has access to the funds at a given time.
Types of Mortgages
There are two main types of mortgages depending on the interest rate provided – Fixed and Variable mortgages.
Fixed mortgages have a set interest rate for a particular period. This option is perfect for those who wish to budget with confidence. There is low risk in fixed mortgages since the interest rate remains stable. The downside is that the debtor does not have a flexible scheme and cannot access perks such as redraws and extra repayments. Breaking a fixed mortgage also carries an expensive break fee.
Variable Mortgages do not have a set interest rate, and instead, the rate fluctuates with the market. This option carries risks but also offers a lot of benefits like extra repayments. A rate increase can cost more, but a rate decrease will help you save just as much.
Mortgages in Australia
Most Australian creditors require a 20% down payment on the property. Others that quote 10% might ask you to cover mortgage insurance as well. Split mortgages are also offered by them, which allow you to split the mortgage into two parts. While a variable interest applies to one portion, the other has a fixed interest. The periods for the same are negotiated or detailed in the agreement. These options help debtors benefit from the risk of variable interest while not going bankrupt.
There are a lot of terms that are specific to the world of mortgages. Understanding what to do and how to do it can be frustrating. Worry not, and enlist the services of a mortgage broker in Sydney that understands the Australian real estate market to help you make the right decision.
Author Bio: Ester Adams is a farmer of words in the field of creativity. She is an experienced independent content writer with a demonstrated history of working in the writing and editing industry. She is a multi-niche content chef who loves cooking new things
