There are so many home loans available; it can be difficult to choose the right one. To help you choose the right one for you, we’ve reviewed all of our home loans.
The options for home loans are now more flexible and personal than ever. You might prefer a shorter-term loan with higher repayments or a lower monthly payment for a longer period. You can choose between a fixed or variable rate.
Repayments of principal and interest
For most people, principal and interest repayments are the preferred option. Every payment reduces your principal (the amount that you borrowed initially) and the interest costs. As you pay down the principal, your interest charges will decrease. You can use the equity you have built to invest in your home.
Repayments with interest-only
These repayments cover the interest portion of the loan. This can provide tax benefits for investors who have investment properties. Unless you apply for an additional interest-only term, you will need to begin paying principal at the end of your interest-only period.
You’ll pay more interest if you make only the interest part of your loan repayments. This could be up to 30 years. The loan repayments calculator will calculate how much interest you’ll be paying on an interest-only loan.
We have provided a detailed explanation and case study to help you understand the differences between interest-only and principal and interest repayments.
Australian Securities and Investments Commission opens in new windows with useful information for customers interested in an interest-only repayment term as part of their loan terms. For easy-to-follow infographics that highlight the benefits and drawbacks of this type of lending structure, visit their MoneySmart and open a new window guide. This site also contains examples of what you might pay for this type of loan structure.
What are the most common types of a home loans?
Variable-rate loans
Variable-rate loans have variable repayments. Your payments will change depending on the rate of interest. If rates go up, your repayments do as well. Your repayments could fall if rates drop. These are a great option in low-interest environments like Australia’s since 2009.
Variable-rate loans have the advantage of allowing you to make additional repayments without incurring any charges to pay down your loan faster. A 100% offset is also available. This account offsets your loan balance and can help reduce interest. Fixed-rate loans don’t offer this facility.
Fixed-rate loans
This loan’s interest rate is set for a specific period. It can be fixed for one to five years or up to ten years for investment properties. You can choose to move to a variable or another fixed rate after the initial period ends.
Fixed-rate loans offer the benefit of certainty about your monthly repayments. You’re choosing security and certainty over flexibility. While this can help with budgeting, the downside is that lower interest rates will result in higher repayments. You could also incur economic costs if your loan is cancelled before the term ends.
Split loans
This loan is perfect for those who want the security of fixed repayments but also want features such as a 100% offset. Split loans are partly fixed, part variable, so you can get the best of both.
Two smaller loans will be available to you that is equal to your total loan amount. A $300,000.00 loan could be taken out, but $200,000 can be fixed, and $100,000 will remain variable. You’ll be more financially secure if interest rates rise than if you had a fixed-rate loan. If they fall, you’ll be better off than if your fixed-rate loan was.
We understand that getting a home loan can be overwhelming. Don’t let it get you down. You can make an appointment online to meet with a specialist in home loans if you are ready to get started.
