How to Compare Owner Occupier Home Loans
You may have heard of the term owner-occupied home loan. If you’re looking to secure a home loan as a home owner, this type of mortgage is the right fit for you. So what does owner occupier home loan mean? Here is what you need to know:
What is an owner-occupier home loan?
There are two types of home buyers: people who are buying a home with the intention of making it their primary residence and people who are buying an investment property to rent out. The right type of home loan for you will depend on what you intend to do with the house you’re buying.
If you’re buying property with the purpose of generating rental income or to sell it for capital gain, you will need an investment home loan. This type of home loan is designed for investors. Usually, this has a higher interest rate compared to owner occupied because property investors are viewed as riskier borrowers.
On the other hand, an owner-occupier home loan is for people who will reside in the property they are buying. Owner occupier home loans generally have a lower interest rate than investment home loans, meaning mortgage repaymentsare lower. If you are a first time home buyer, you may also be eligible for a First Home Owner Grant.
Recognising what type of home buyer you are is an important part of the equation when you are applying for a home loan because this will affect what interest rate you will get and whether you go with a variable or fixed rate home loan.
How to compare different owner occupier home loans?
Comparing different owner occupier home loans is important to make sure that you are getting the best possible deal. Here are some things to consider when comparing owner occupier home loans from different lenders.
Interest rate: Owner occupier home loans have a lower interest rate than investment home loans but it is still imperative to understand the types of interest rate that are being offered by your lender. Typically, there are two kinds, variable and fixed rate.
With a variable rate loan, your interest rate and repayments may change over time because of factors such as movements in the Reserve Bank’s official cash rate and your lender’s cost of funds. Variable rate loans usually have more flexible repayment conditions because there are no penalties for making extra repayments, and there is no locked-in period.
Fixed rate loans have an interest rate that is fixed for a period of time, usually for one to five years. This means your mortgage repayments will remain unchanged for that period. This will give you predictable repayments, however, you may need to pay heavy penalties if you decide to break the fixed rate early to secure a lower interest rate or to made additional repayments.
Upfront payments and ongoing fees: Different lenders have a variety of requirements for upfront payments and ongoing fees. Upfront payments usually include the house deposit which is must typically be at least 20% of the property purchase price to avoid paying for Lender’s Mortgage Insurance. Other common upfront fees and ongoing fees are stamp duty, conveyancing fees, insurance, valuation fees and transaction fees. Make sure to consider all of these when applying for a loan.
Home loan features: These will also depend on the lender. Some lenders will offer a 100% redraw offset, interest-only options, or unlimited additional repayments. Make sure to watch out for these features so you can use this to your advantage.