Purchasing a property is a major financial decision! That’s why it’s important that you understand your loan options and know how to make the right choice to suit your needs.
Both home loans and loans against property can be useful in helping you secure your dream home. By understanding the differences between these two lending options, you can select a pathway that sets you up for ongoing success.
Home loan or LAP? Which should you choose?
What is a home loan?
A home loan is designed to help you purchase a house, regardless of whether or not you own another property.
When you secure a home loan, you’ll pay a predetermined deposit amount towards your property purchase. The rest of the property value will be covered by funds borrowed from your lender. Over time, you’ll be required to pay back this loan, as well as paying interest.
What is a loan against property (LAP)?
A loan against property is a mortgage loan that requires you, as a borrower, to pledge your existing self-owned property for a sum equal to a percentage of your existing property’s market value.
With a loan against property, you’ll need to hand over property documents to your lender until you have repaid your loan and associated interest. If you default on your loan, the lender can sell your existing property to cover what you owe.
What are the main differences?
A home loan is a suitable option for all kinds of homebuyers, including first-time buyers. On the flip side, a loan against property is only an option if you already self-own another property.
A home loan will require you to pay a deposit and may require lender’s mortgage insurance if your loan-to-value ratio is greater than 80%. A loan against property uses the property you already own to secure your lender’s financial investment.
With either a home loan or a loan against property, you will need to commit to make regular minimum repayments towards your loan amount. You will also be required to pay interest on the funds you have borrowed.
Which option is right for you?
There are many things you need to consider when determining which loan pathway is right for you.
Talk to your broker, and get help to assess your financial situation and options. Learn everything you can about how different loan types may influence your financial situation or repayment obligations.
Think carefully about your financial goals, both now and in the future. Consider which loan option is most likely to help you achieve your goals and purchase a great property while also protecting your investments over time.
When you do your research and critically assess a variety of options and pathways, you can make an informed decision that helps you continue to get the most out of your purchase for the long term.
Need help understanding your home loan and navigating it with confidence? Contact the best mortgage broker Sydney has to offer at Our Top 10.
