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march 31, 2025

Understanding Home Loans: A Guide to Home Financing

Mortgage Loans

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A home loan is one of the biggest financial commitments you’ll make in your lifetime. Whether you’re a first-time homebuyer or looking to refinance, understanding how mortgages work is essential to making smart financial decisions. This guide will walk you through the basics of home loans, types of financing, and key considerations before applying.

What is a Home Loan?

A home loan is a loan used to purchase a home, where the property itself serves as collateral. You agree to repay the lender over a set period, typically 15 to 30 years, through monthly payments that cover both the principal amount and interest.

Types of Home Loans

There are different types of mortgages available for first-time home buyers. Choosing the right one depends on your financial situation and long-term goals:

  1. Fixed Interest Rate Home Loan
    • Offers a stable interest rate for the loan’s term
    • Ideal for homeowners who prefer predictable monthly payments
    • Common loan terms: 15, 20, or 30 years
  1. Floating Rate Mortgage
    • Interest rates fluctuate based on market conditions
    • Lower initial interest rate compared to fixed-rate mortgages
    • Can be beneficial if rates decrease, but riskier if they rise
  1. Interest-Only Home Loan
    • Allows borrowers to pay only interest for a set period (usually 5-10 years)
    • Lower monthly payments initially, but principal payments start later
    • Suitable for investors or those expecting a future income increase
  1. Government Home Loan Assistance (Check eligibility for country-specific programmes)

    • KiwiSaver – Allows New Zealand homebuyers to use their KiwiSaver savings for a first home deposit.

    • First Home Grant – A government grant for first-home buyers who meet income and deposit criteria

    • Welcome Home Loan – A low-deposit home loan backed by Kāinga Ora, making it easier to enter the housing market in New Zealand. 

Steps to Secure a Home Loan

1. Assess Your Financial Readiness
Before applying, evaluate your financial situation:

  • Credit Score: A higher score gets better rates.
  • Income Stability: Lenders prefer a steady income source.
  • Debt-to-Income Ratio: Your total monthly debts should be manageable compared to your income.

2. Save for a Down Payment
Most lenders require a 10-20% down payment. Some programmes allow for lower down payments, but a larger deposit reduces your mortgage costs.

3. Get Pre-Approved

    • A pre-approval letter from a lender shows how much you qualify to borrow and strengthens your position when making offers on a home.
  1. Compare Home Loan Providers
    • Shop around for the best interest rates, terms, and lender fees. Consider working with a financial advisor to explore options that suit your budget.
  1. Decide Between Fixed or Floating Interest Rate
    • Interest rates fluctuate, so locking in your rate ensures it remains unchanged until closing.

6. Complete the Mortgage Process

Once your loan is approved, you’ll:

  • Sign loan documents
  • Pay closing costs
  • Receive the keys to your new home!

How can Billig help?

Billig simplifies the mortgage process by guiding you through financing options, securing the best loan terms, and ensuring you make informed decisions. Whether you need advice on home loans, refinancing, or mortgage structuring, our team is here to help.

Ready to finance your dream home? Contact Billig today for expert mortgage advice!

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