A low home loan rate will help a first home buyer to save cash over the life of the loan. Given that the typical length of a loan is 20-30 years, selecting the best type of mortgage for first time buyers can save a small fortune in interest repayments. The borrower will typically pay back more than twice the original loan amount. It is important to take time to assess the different mortgage types and other important considerations when buying a house for the first time.
First Time Property Buyer Mortgage Types
Fixed rate mortgage. This first time buyer mortgage rate is set in stone for x number of years. This is a popular first time buyer home loan for fixed income families who need the certainty of a stable monthly payment because they wouldn’t be able to cope with a sudden increase.
Discounted mortgage. Rather than paying the full rate of interest from the outset, it will be subsidised for the first few years of the deal. This improves affordability for professionals who are likely to experience income growth as their career progresses.
Interest only mortgage. The customer pays back the interest that accrues, not the capital. This needs to be repaid via a separate repayment vehicle. Buying a home for the first time buyer is often easier because of the greater affordability that is offered.
Cash back mortgages. These provide the first buyer with a cash lump sum based upon the amount that is borrowed. Although the interest rate is normally higher, the money can be used to help buy household items, carry out repairs or even be used for a home deposit.
Current account mortgages. An ideal first time buyer mortgage for customers who have access to personal savings. The money is held in a separate, although linked, savings account that is used to offset interest payments so it saves cash over the life of the loan.
Base rate tracker home loan. Moves up and down in-line with the rate of the central bank. Lenders will add their margin so the rate will typically be 1% higher. The tracker home loan is ideal for those who believe that interest rates are likely to fall or stay low for the foreseeable future.
Standard variable rate. Once the fixed period has come to an end, the rate of interest will track central bank base rates in a similar way to a base rate tracker deal. However, there will be a greater margin, typically over 2%.
Select the Right Type of Mortgage for First Time Buyers
Raising a sufficient first time buyer deposit, typically 5-10%, is necessary to get acceptance for a low home loan rate deal. It is also protects against negative equity in a falling property market.
If the applicant has failed to comply with the terms and conditions of earlier credit agreements, they may need to apply for a specialist bad credit home home loan. A higher house deposit will be needed and the loan will be more expensive.
It is very important to establish affordability at an early stage. Failing to keep-up with the repayment schedule could lead to home repossession.
Many professional consumers don’t start to reach their full earning potential until they reach their mid-30’s. This category of borrower may be able to get a loan for slightly more. A first time buyer mortgage that starts off low and increases in-line with earnings improves affordability.
The services of a professional home loan broker can be utilised to trawl the market for the best first time house buyer loan deal. They also provide invaluable help and guidance.
Other First Time Home Buyer Mortgage Considerations
Whilst the government will help with rental payments for tenants, home loan assistance is almost entirely provided by the private sector. It is important to consider Mortgage Payment Protection Insurance (MPPI).
A decreasing term life insurance policy is often considered essential for a young family with children. It provides an affordable source of coverage that is designed to protect loved ones from undue financial hardship in the event of death.
The Lowest First Time Buyer Mortgage Rate
Buying a home for the first time is not only complicated, it can be very stressful. Utilising the services of a home loan broker alleviates much of the strain, as well as allowing that person to learn from a seasoned veteran. The right mortgage type depends heavily upon the borrower’s personal and professional circumstances, not to mention the way they see interest rates moving in the near future.
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