What You Need to Know About Home Loan Rates | Loan Monster
The day you can finally turn the keys to your new home is a significant achievement, a major milestone in your life. Buying a home is what many dream of but it all starts with securing a mortgage. A mortgage is fairly straightforward but interest rates are understandably a little more difficult to fully comprehend.
How Home Loan Interest Rates Work
Every mortgage has an interest rate attached to it. Payments made on the loan each month go towards the principal and interest. Most lenders require at least a 5% deposit on the value of the home, although there are other financing options available for homeowners with little saved for a deposit.
Let’s take a look at an example to better illustrate how home loan interest rates work:
The home you are interested in costs $300,000 and you have about 5% of that value saved up, or $15,000. You would need to borrow $285,000 to cover the rest. If you have a loan that is repayable over 30 years your monthly payments on interest rates of 5% would be roughly $1,529, not including Lenders Mortgage insurance which may be needed.
Assuming you pay the exact amount for 30 years, you will have paid about $265,778 in interest alone.
However, if the interest rates are at 6%, your monthly payments would be about $1,708. After 30 years, the total amount you pay in interest would be about $330,139.
Interest rates of 5% would essentially save you about $64,360 in interest over the course of a 30 year mortgage compared to 6%. This is just an example but it illustrates how a single percentage can impact the total amount you pay.
What Determines Your Mortgage Rate
You cannot expect to get the lowest rate possible on a mortgage. There are numerous factors involved that lenders use to determine what you qualify for.
Lenders look closely at the following:
Credit score: Lenders need to be sure of their investment. The higher your credit score, the better rates you can qualify for. A history of late payments does not necessarily prevent you from borrowing, but it is likely to result in a higher rate.
Employment history: Lenders will look at your employment status in detail to assess the stability of your income. Having a stable income looks good on your application and shows you are not a financial risk for the lender.
Down payment: The amount of money you can put down when applying for a mortgage also affects your loan rate. At least 5% is ideal, although putting down more proves you are able to manage your finances well by saving enough for a down deposit.
Financial Obligations: Having a significant amount of debt relative to your income could potentially hurt your borrowing ability or the rate you can qualify for. This does not mean that debt from credit cards or students loans will prevent you from refinancing as there are also debt consolidation options available.
Lenders will look closely at the above in detail to assess your ability to pay back the loan. Our mortgages brokers can help walk you through the refinance process and what your available financing options are.
Fixed or Variable Rate Loans
Another important consideration is whether the loan has a fixed or variable rate. Both have their advantages and disadvantages and each option should be carefully considered.
Variable rate loans are directly tied to market rates, meaning the amount you pay each month will vary. Fixed rate loans are locked in at a certain rate so you pay the same amount for each payment, even in a volatile market.
At Loan Monster, we can assess your financial situation and help you choose which one would be better suited for you. If you have a variable rate loan and want to lock in a lower rate, we can help.
Choosing a Mortgage Broker
Knowing about home loan rates in Perth is important when making real estate related financial decisions. Whether you plan to buy a home, refinance an existing loan, or invest in a property, this knowledge will help you make an informed decision.
Instead of going through all the hassles and taking too much of your time, you can always ask Loan Monster for the information you need. We offer dependable assistance and invaluable advice, free of charge.
Get in touch with Loan Monster today by using the form on this page. It only takes a minute to complete and we provide a response within 24 hours, even on the weekends. We highly value everyone who consults with us and take pride in creating lasting relationships with our clients.
Our team is here to help answer any questions you may have whether you are buying your first home or looking to buy an investment property.