Choosing the right home loan starts with a clear picture of where you are now and where you want to be in the short term and long term. Here are the key factors to consider before you commit:
Define your goals
Think about your plans over the next few years and beyond. Will this be your forever home or just a stepping stone? If you only plan to live in it for a few years, consider structuring your loan so you can easily switch it to an investment property later. Do you want to pay off your loan as quickly as possible? Are you balancing other investments or saving for renovations? Clarifying these priorities will guide every decision that follows.
Understand loan types
- Principal and interest versus interest only: Principal and interest repayments reduce both your loan balance and the interest charged. Interest only repayments keep monthly costs lower but do not reduce your balance
- Variable rate, fixed rate or split loan: A variable rate loan can go up or down with market movements. A fixed rate loan locks in your repayments for a set period. A split loan lets you enjoy both fixed and variable features in one package
Choose the right loan term
Most lenders offer a maximum term of 30 years but some will extend up to 40 years. A longer term can lower your monthly repayments but increase the total interest paid over the life of the loan.
Understanding some key jargons
Understanding mortgage terminology is essential, with terms like LVR (Loan-to-Value Ratio) and LMI (Lenders Mortgage Insurance) significantly impacting loan conditions.
1. LVR – Loan-to-Value Ratio
LVR is the percentage of the property value you’re borrowing.
Example: If you’re buying a $700,000 property with a $70,000 deposit, your loan is $630,000. Your LVR is 90%.
The more deposit you can contribute, the lower your LVR will be. A lower LVR means the lender sees you as a lower-risk borrower. In return, this can unlock better interest rates and reduce your costs (such as avoiding LMI).
Conversely, a higher LVR (usually above 80%) means you may face higher rates and be required to pay Lenders Mortgage Insurance (LMI).
Most lenders prefer LVRs of 80% or less. Borrowing above that can mean higher costs or additional requirements.
2. LMI – Lenders Mortgage Insurance
LMI protects the lender—not you—if you default on your loan. It’s generally charged if your LVR is above 80%.
The cost can range from a few thousand to tens of thousands depending on the property price and your deposit. Some professionals (e.g. doctors, lawyers, accountants, bank staff) may qualify for waived LMI with select lenders.
Determine your deposit and budget
Even though your mortgage broker will recommend the ideal loan amount and structure, it helps to understand the basics beforehand
- How much deposit you can contribute, how much saving left after the purchase
- Your target property price range, property type and suburbs
- With this information your broker can calculate how much you’ll need to borrow and then propose features such as offset accounts, redraw facilities and extra repayment options
Prepare for the meeting
Before you speak with your mortgage broker gather:
- Proof of income such as payslips or tax returns
- A breakdown of your monthly expenses
- Details of your assets and liabilities
- Having this information ready means your broker can assess your borrowing capacity and propose the right product quickly.
How Mortgage Helpdesk can guide you
At Mortgage Helpdesk we take you through every step from setting goals to selecting the ideal loan product and managing your application. We will ensure you understand all key terms and help you obtain a home loan that supports both your short term needs and long term ambitions.
