EENY, MEENY, MINY, LOAN

Here is some tips for First Property Buyers !!!!

Typical borrowers often fall into the trap of thinking that the cheapest  loan is the best. But this isn't necessarily the case. There are other features from the right product than price alone that should be considered. Mortgage rates also have a nasty habit of changing and so there is no guarantee the cheapest loan today will still have the lowest rate in a couple of years.

"If you choose the wrong product it is possible to change your lender but that can be expensive and may even run into thousands of dollars"

Know Thy Self

The first step is to determine exactly what your needs are; what may be an appropriate product for one borrower may be entirely unsuitable for another. One of important considerations is what you plan to do with the property and what are your personal circumstances. Do you plan to live in the property, or are you buying it as an investment? Are you buying an established property or building your own home? Are you employed by an organisation or self employed? Once you have established the basis on which you would be borrowing, you can then consider some of your other some of your other circumstances and goals.

A Matter of Interest

Generally speaking there are some fundamental differences between the goals of investors and owner occupiers. This is reflected in the loan products that are tailored to each circumstance.   

Buyers who plan to live in their properties typically look to pay off their mortgages as quickly as they can afford to. That means a principal and interest loan is ussually the most effective strategy for achieving this. This type of buyer try to decrease the overall ineterest through faster loan repayment.

On the other hand, investors have other objectives. For example, they seek out a tax efficient loan that also maximise their cash flow, which is why interest only loan is often favoured by this segment. An interest only loan minimises the investor's monthly outlay as they only repaying the interest on their loan, not any of the principal amount. Interest only loan are usually taken for for short term - up to five years. Generally the investor would then switch to a principal and interest structure for an agreed term.

While there are tax incentives for investors in a flat - or even falling property market, there is a risk that they could find they have little or no equity in their property after a few years, and have not reduced their laon at all. Furthermore, if you plan on building your own place you'll need a construction loan. This type of loan differs from finance for established properties as the loan is paid down at different stages of construction, with the final instalment paid upon completion.

Personal Circumstances

Employment status also has a bering on what loan you will be eligible for. 

• Full time workers on a permanent contract will genereallly find it easier to qualify for a mortgage as long as their financial situation stacks up. 
• For self employed borrowers and business owners, securing a mortgage can be a bit more of a challenge. The problems lies in the shortfall in documentation that self employed and contract workers face, which rules them out of most mainstream products. However, there are products that specially tailored for them. A product called low doc (low documentation) loans where fewer financials have to be provided. Low doc loans tend to attract a higher interest rate unless the LVR is 60% or lower of the property's purchase price, so they may be out of reach of many first time buyers. Self employed borrowers who can't provide full documentation will face higher interest rate.
• Borrowers who have broken loan or credit agreements in the past are likely to have problems securing  a home loans for most lenders. Fortunately, some lenders specialise in lending to credit impaired borrowers will assess the nature of the borrower's past problems and make a decision based on their current situation. Credit impaired borrowers will pay a premium for their loan of three percent higher than standard rates and in some cases a lot higher.

The Right Loan Term

The simple term is the faster the borrowers repay the mortgage the less interest they'll pay to the lender. One thing that borrower is ussually miss out is how little of their repayment actually goes towards driving down their loan in the early stages of repayment. The longer the loan term, the longer the bulk of your repayments will be interest rather than principal. There are only three ways to reduce the cost of your home loan and cut the life of your loan:

• Get a cheaper interest rate and pay only for the features you need
• Make your repayments more often
•  Make payments greater than the required amount. Pay back as much as you possibly can

Refinancing
Once you have scured your loan you may want to change your lender, product or change the structure of the loan for some reasons. While it is possible to change but it's important to understand the potential costs and have a good reason for making any changes. 

When borrower sign up with any lender there will be clause written into the contract that detail what penalties may be imposed if he break the agreement early. First time buyers should be wary of breaking fixed interest loans and should also look carefully at the terms and conditions associated with honeymoon rates. They should also look at break fees that may be charged.