Different Types Of Home Loans
There’s a lot more to loans than interest rates and fees
Obviously a low rate is important but it’s not everything. There are different sorts of loans and features that will make managing your mortgage easier. We can take the time to teach and advise you on the fundamentals you need to know to make an informed decision. To begin with, it’s important to know the main types of loans:
Variable
The interest rates go up and down depending on factors such as the official cash rate, market conditions and each lender’s decisioning. When the rate goes down, so do your minimum repayments. But when the rate goes up, your payments will too. Obviously, a low rate is important but it’s not everything.
Fixed
The interest rate can be fixed for one to five years. Even if rates change, your repayments stay the same. This helps manage your household budget by knowing exactly what you’ll have to pay. Of course, you won’t benefit if interest rates drop and there may be significant break costs to change the loan before the end of the fixed term.
Split Rate
One part is variable, the other is fixed. This lets you enjoy the benefits of an interest rate drop but also protects you from being affected fully if they rise.
Interest Only
You only pay the interest on your loan but not the principal loan amount. Your repayments are less but you still have the same level of debt at the end of the interest only period. However, an interest only loan will usually cost more over the term of the loan as you won’t start paying off the principal until after the end of the interest only period.
Line of Credit
You can pay into and withdraw from this account as long as you keep up with the required repayments. You can have your income paid into this account to help pay off the mortgage sooner but interest rates are usually slightly higher.
Honeymoon Periods
Designed especially for first homebuyers, you can enjoy a lower interest rate for the first six to 12 months, and then the rate returns to the standard variable rate.
Low Doc
These are popular with self-employed people because they need less documentation or proof of income. However, they usually have a higher rate of interest or need a larger deposit, or both.