Understanding the features of your home loan

First home buyers are getting older. More than half of Australian first home owners are between the ages of 30 and 49, with a further 11.7% in in their 50s.

As a result, lenders have a wide range of home loan products to suit first home buyers throughout all life stages – whether you’re looking to secure a home for your growing family or planning to finally escape the rent trap later in life. That’s why it’s more important than ever to carefully compare home loan products across lenders.

Understanding the different types of home loans available can help you to choose a suitable loan for you.

Variable rate home loans

The interest you pay on a variable rate home loan may fluctuate with changes to the Reserve Bank of Australia's (RBA) cash rate. That means if your lender passes the interest rate change onto you, your payments will also change.

It’s important to remember that while the RBA reviews the official interest rate every month, lenders can independently choose whether or not to increase or decrease the interest rate they charge their customers.

With this type of loan, there are usually no limits on making extra repayments, which means you can choose to pay off your variable rate home loan faster as your financial situation improves.

Fixed rate home loans

Fixed rate home loans offer a stable interest rate that’s fixed for a set period of time – usually between one and five years.

The good news is that a fixed rate home loan makes budgeting easier – you’ll know exactly how much your monthly repayments will be for the fixed rate period. You’ll also be protected from interest rate rises during that time.

However, you won’t benefit from interest rate drops, and many fixed rate home loans don’t allow you to make extra repayments or may charge a fee for doing so. You’ll also need to be aware of any break fees your lender may impose if you change or pay off your fixed interest loan before the end of the agreed period.

Split home loans

A split or partially fixed home loan lets you have a foot in both camps. It allows you to set a fixed interest rate on a portion of your loan, while applying a variable interest rate to the remaining balance.

This mitigates your risk of interest rates rise because you’ll only pay the higher rate on the variable portion of your home loan. However, if interest rates drop, you’ll also only receive savings on the variable portion.

There are usually no restrictions on making extra repayments on the variable portion of your loan, but break fees may apply to the fixed portion of your loan. It’s best to check with your lender.

The home loan that works for you will depend on the individual needs of your family and your financial circumstances – so it’s worth comparing options.

Comparing home loans can help you to find a suitable home loan.

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