What is a Home Loan?
A home loan, also called a mortgage, is simply a long-term loan. You get one through a bank,
credit union or other financial institution. Although it is likely to be the biggest loan you ever
have, it is designed to be paid off slowly through manageable monthly or fortnightly repayments.
You choose how long you need to pay off the loan. Terms of 30, 25 and 20 years are most common.
The lender will use your house as collateral against the loan.
How a home loan works
A home loan is made up of principal and interest. Principal is the amount you borrow. Interest
is what you pay to borrow the money. At the start of the loan, your repayments largely consist
of interest, with a small amount going towards the principal. As you reduce the principal, your
interest charges fall until eventually the loan is paid off.
Case Study: If you took out a $100,000 loan at seven per cent over 25 years, you would end up
paying a total of $212,100: $112,100 in interest plus the $100,000 principal.
What's in it for the lender
Home loan lending is the core activity of many banks and financial institutions. They make
their money from:
- Interest on the loan
- Loan establishment fees
- Ongoing fees and charges
These charges reflect the cost of money as set by the Reserve Bank, the risk associated
with the home loan, the cost of administering it and the need for all businesses to make a
reasonable profit.
Interest rates, establishment fees and charges vary between all banks, and all loans. Sometimes it can be misleading when you see an interest rate that is very low. This loan may have high fees, which when added to the overall cost of the loan, can then make it not so attractive or offering good value.
BAM is happy to quote you on your Home Loan.
Please Contact Us or fill out an
Enquiry Form so that we can get back to you.
If you are happy to proceed please fill out an Application
Form.
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