Purchasing a home is a significant step, requiring careful decision-making skills to ensure you get the property that ideally fits your wants and needs. However, getting a house is also a considerable investment, and you must have the funds and patience to go through the process of securing a home loan successfully.
Home loan interest rates are affected by a number of factors, both economic and personal. It can be complicated to understand, but this comprehensive guide will simplify the factors.
The Economic Factors
The economy has a major impact on home loan interest rates in Australia. As a homeowner, you should be aware of all the economic factors that will influence possible mortgage rates:
- Inflation
In simple words, inflation refers to the rise in prices of services and goods due to the reduction of purchasing power. When inflation climbs, expect an increase in mortgage rates.
- Monetary Policy
Monetary policy, set by the Reserve Bank of Australia (RBA), determines the amount of money (cash rate) flowing into the economy. When the RBA loosens (expansionary policy) the cash rate, interest rates will fall. Meanwhile, tighter cash rates (contractionary policy) will increase interest rates.
- Housing Market Conditions
The lower the demand for housing, the lower the interest rates will be. In the event that most people prefer renting over owning a home, there is an increased possibility that mortgage rates will be cut.
Personal Factors
On top of economic conditions, the cost of financing a home will also depend on your background. Additionally, the type of loan you secure and the downpayment could change your expenses.
- Credit Score
Your credit score, pertaining to your loan history and financial habits, will affect your probability of securing a home loan. If your credit score is riddled with negative records, such as defaulted repayments, home loan costs could rise, or you might encounter mortgage approval difficulties.
- Loan Type
Interest rate structures vary based on two main types of mortgages: fixed and variable. Fixed rates have interest unaffected by changes in the market, while variable rates might fluctuate. It is essential to understand economic probabilities before securing a loan. For instance, if national interest rates are cut, variable home loans will benefit since repayments will be reduced.
- Job Profile
Your source of income will also determine whether you can get the loan. If you have a reliable source of cash inflow, there is a higher chance of approval. However, the opposite will make it difficult to secure a mortgage.
Get Expert Help for Your Loan
Multiple factors will impact your mortgage and your ability to pay. To better understand how to navigate the Australian home loan market, get expert advice from professional brokers at Scale Mortgage.
