WHICH LOAN?
THE PICK OF THE BUNCH
There’s a huge choice of home loans available, but to find your perfect match you’ll need to do a bit of homework. Making yourself familiar with a few of the popular products available will give you a strong head start when discussing your loan options with your broker. Here are just a few of the product types you’re sure to come across:
BASIC HOME LOANS
Basic home loans – or ‘no frills’ loans – offer borrowers a loan with a low interest rate. A popular choice among first home buyers, a basic home loan’s interest rate is often half to one per cent below the standard variable rate, which is sometimes combined with minimal ongoing fees. Drawbacks include limited features, less flexibility, and additional charges if you decide to switch loans or pay the loan off sooner.
FIXED-RATE HOME LOANS
Worried about rising interest rates? A fixed rate home loan will allow you to fix your interest rate for a specific period, usually from one to five years. It’s a sound option when interest rates are on the rise or in times of economic uncertainty. Should interest rates plummet, however, you’ll still have to pay off your mortgage at the fixed rate until the end of the agreed period.
STANDARD VARIABLE-RATE HOME LOANS
Considered a popular mainstream choice, standard variable-rate home loans allow you to borrow money for a set period of time, during which you make regular repayments based on the current interest rate. The interest rate can vary depending on fluctuations in the official cash rate.
LOW DOC HOME LOANS
If you’re a self-employed, contract or seasonal worker and do not have a regular income a low doc loan may be a solution. While making homeownership a possibility for a cross section of Australians workers which previously found it difficult to secure a mainstream bank loan, most low doc home loans typically have higher interest rate. Your lender may also require you to take out lenders’ mortgage insurance in order to secure a loan.
SPLIT-RATE HOME LOANS
Want the best of both worlds? A split-rate home loan offers both flexibility and security. A good product for both first time and existing borrowers, split loans allow you to customise your loan’s interest rate as you see fit: fixing a portion of your interest rate to give certainty to your monthly repayments should rates increase, but also flexibility through taking out a variable-rate portion.
INTEREST-ONLY HOME LOANS
Interest-only loans offer borrowers lower repayment options, while maintaining many of a traditional loan’s features. This type of loan allows you to pay only the interest component on a mortgage; it does not reduce the principle component. They are a popular choice for investors looking for good capital appreciation on their investments.
PRODUCTS AT A GLANCE:
BASIC HOME LOANS
Pro – Interest rates are often half to one per cent below the standard variable rate.
Con – Limited features, less flexibility and possible penalty fees for early loan repayment.
LOW DOC HOME LOANS
Pro – Can help you enter the property market if you’re a self-employed, contract or seasonal worker without regular income or proof of income.
Con – Typically have higher interest rates; you may also have to pay LMI.
STANDARD VARIABLE-RATE HOME LOANS
Pro – Make regular repayments based on the current interest rate; effective if rates do not rise.
Con – Should interest rates increase your regular mortgage repayments will rise.
FIXED-RATE HOME LOANS
Pro – Fix your interest rate for a specific period, giving certainty to regular repayment amounts.
Con – Should interest rates fall you’ll still need to repay your mortgage at the agreed fixed rate.
SPLIT-RATE LOAN
Pro – Fix a portion of your interest rate to give certainty to monthly repayments while also benefit from a variable-rate portion should rates drop.
Con – If interest rates do drop you’ll be left paying a higher rate for your fixed-rate portion.
INTEREST-ONLY HOME LOANS
Pro – Pay only the interest component on your mortgage.
Con – Repayments do not reduce the principle component of your mortgage.
Paul Loupetis
Finance Specialist
0425 800 005
“Your Path to Financial Freedom”
