Choosing the correct home loan for your particular needs is a very important process when it comes to purchasing a property, it’s not necessarily as straight forward as you think. There’s more to knowing the right mortgage than finding the cheapest rates, most banks and lenders have a suite of mortgages – and the one that’s right for you depends on a number of factors.
Are you a first-time home-owner? Are you buying an investment property? Are you selling your current home and buying another one? If so, how much equity do you have in your current home? Whatever your situation, you’ll most likely have access to the majority of home loan options your lender can provide. The one that’s right for you depends on your circumstances.
Home loan types available
They can vary from lender to lender, but generally include:
- Standard Variable Rate. This is the most popular home loan, offering a good mixture of features, flexibility, fees and rates. With this type of mortgage, you make extra payments without incurring a penalty, access a line of credit or split your loan between fixed and variable rates. This of course comes at a cost – the interest rate is higher than a basic variable loan, but this can be part of a lenders Professional Package, which will offer an interest rate discount.
- Basic Variable Rate. While offering a low interest rate, this is a no-frills mortgage. You may not need redraw, offset or repayment features today, but keep in mind that your situation may change over the course of the mortgage.
- Fixed Interest Rate. Even though this rate will be higher than the variable rate, the main benefit is that, for the agreed term (usually between 1 to 5 years) you’ll know exactly how much your mortgage repayments will be from month to month. Popular during times of low interest rates, but be sure rates aren’t going to go any lower before signing up.
- Split Rate. This offers you a certain amount of security in being able to fix a percentage of your mortgage, while having access to some of the flexibility that a variable home loan offers. Almost like an each way bet, it’s popular when rates are low and are set to begin rising again.
- Honeymoon Rate. These enticing loans offer a low interest rate for between one and four years, then switch over to the current variable rate. They can be either fixed or variable – the disadvantage of a fixed honeymoon rate is that, even if interest rates continue to drop, your mortgage repayments won’t.
- Redraw Facility. To be able to use a redraw facility, you need to make additional mortgage payments on top of your minimum mortgage loan repayment schedule first. If you make additional payments but don’t use the redraw facility, you’ll pay your mortgage off more quickly.
Different repayment options
Basically, there are two standard repayment options:
- Interest Only. You repay only the interest that has accrued on your loan. The principal remains the same until the end of the agreed term, then the mortgage will convert to Principal and Interest repayments.
- Principal and Interest. Both the amount borrowed and the interest accrued are repaid over the agreed term.
Do your homework first
As you can see, for a home loan there are a wide range available to you and it’s really worth doing your research to determine which one is the best choice for you. Don’t be afraid to speak to a variety of lenders. Better yet, a mortgage broker will do all the hard upfront work for you and give you the lender and package that appears to offer you the best range of benefits over the long-term.