Guide To The Types Of Home Loans In Australia

Mortgage managers, banks, credit unions, brokers, insurance groups all offer a seemingly endless choice of Payday Cash Advances in St Charles, Maryland options – introductory rates, standard variable rates, fixed rates, redraw facilities, lines of credit loans and interest only loans, the list goes on. But with choice comes confusion. How do you determine what the best type of home loan is for you?

First, set your financial goals, determine your budget and work out how long you want to pay a mortgage for. You can do this yourself or with your financial advisor or accountant.

Second, ensure the organization or person you choose to obtain your mortgage from is a member of the Mortgage Finance Association of Australia (MFAA). The MFAA Member logo ensures you are working with a professional who is bound by a strict industry code of practice.

Third, research the types of loans available so you can explore all options available to you with your mortgage provider. Some home loan choices are:

Basic Home Loan

This loan is considered a no-frills loan and usually offers a very low variable interest rate with little or no regular fees. Be aware they usually don’t offer additional extras or flexibility in paying of extra on the loan or varying your repayments.

These loans are suited to people who don’t foresee a dramatic change in personal circumstances and thus will not need to adapt the loan in accordance with any lifestyle changes, or people who are happy to pay a set amount each month for the duration of the loan.

Introductory Rate or ‘Honeymoon’ Loan

This loan is attractive as it offers lower interest rates than the standard fixed or variable rates for the initial (honeymoon) period of the loan (i.e. six to 12 months)

before rolling over to the standard rates. The length of the honeymoon depends on the lender, as too does the rate you pay once the honeymoon is over. This loan usually allows flexibility by allowing you to pay extra off the loan. Be aware of any caps on additional repayments in the initial period, of any exit fees at any time of the loan (usually high if you change immediately after the honeymoon), and what your repayments will be after the loan rolls over to the standard interest rate.

These loans are suited to people who want to minimise their initial repayments (whilst perhaps doing renovations) or to those who wish to make a large dent in their loan through extra repayments while benefiting from the lower rate of interest.

Tip: If you start paying off this loan at the post-honeymoon rate, you are paying off extra and will not have to make a lifestyle change when the introductory offer has finished.

Redraw Facility

This loan allows you to put additional funds into the loan in order to bring down the principal amount and reduce interest charges, plus it gives the option to redraw the additional funds you put in at any time. Simply put, rather than earning (taxable) interest from your savings, putting your savings into the loan saves you money on your interest charges and helps you pay off your loan faster. Meanwhile, you are still saving for the future. The benefit of this type of loan is the interest charged is normally cheaper than the standard variable rate and it doesn’t incur regular fees. Be aware there may be an activation fee to obtain a redraw facility, there may be a fee for each time you redraw, and it may have a minimum redraw amount.