Home Loans 101

How does a home loan work?

A home loan is simply money loaned from the bank in order to cover the purchase of a property, without having to pay the full price upfront. A deposit is paid upfront and the remaining amount is due in monthly instalments, with interest, over a course of 20 or 30 years.

The interest rate on your home loan is determined by how much of a risk your bank considers you to be. Factors such as a payment of a larger deposit or an impressive credit score will greatly decrease your interest rates and therefore save you money in the long term.

Your credit record is the critical aspect in determining your loan, which is reliant on debt repayment history, due amounts and types of credit applications made. This is essentially a reflection of your financial health. The higher your credit rating, and the higher the deposit paid, the more likely you are to earn favourable interest rates.