What types of home loans are there?
When it comes to home loans there’s no one-size-fits-all approach. Mortgages can be complicated, as the market offers different payment options, ways of calculating interest and varying features.
To make sense of it all, here’s an overview of some common loan types:
Fixed rate loans
Fixed rate loans lock in your interest rate for a set period of time – typically between one and five years. During this time, you’ll need to make regular repayments. For savvy budgeters, a fixed rate means your repayments will be the same each time, so there’ll be no nasty surprises.
After the fixed price expires, your rate will usually default to a variable interest rate. When this happens it is a good time to ask your lender for a better interest rate or review your options to refinance with another lender.
Be sure to double-check what fees, if any, you’ll be charged for making additional repayments or paying off your loan sooner. Penalties may also apply if you want to sell or refinance your property.
Variable rate loans
Variable rate loans offer an interest rate that fluctuates, usually in response to economic conditions. This allows you to benefit from rate decreases; but should the rates increase, so will the amount of interest you pay.
Unlike fixed rate loans, a major advantage to variable rate loans is the ability to make extra payments on your mortgage. Making additional payments means paying less interest to pay off your loan quicker, so it might help to have the freedom offered by a variable rate.
Split rate loans
A split rate loan provides the best of both worlds – a portion of your loan is fixed, while the rest remains at a variable rate. This allows you to make extra payments on the variable portion.
Keep in mind, the usual restrictions will still apply to the fixed portion of your mortgage when it comes to making additional repayments.
Interest-only home loans
When paying off a mortgage, you make repayments against the principal loan and the interest owed on the loan. An interest-only mortgage allows you to make repayments on the interest portion of the loan.
This option may be ideal for investors who can claim their interest repayments at tax time. An interest-only loan can also help you manage your cash flow as repayments are usually lower. But you’ll still have to repay the principal loan once the interest-only period is over resulting in monthly repayments being significantly higher.
How does InfoChoice compare home loans?
With more than 20 years experience helping people find, compare, choose and apply for a variety of financial products, we can help you make an informed decision.
To help you compare mortgages, we’ve compiled an extensive list of home loans. Our system allows you to compare home loans by:
· Interest rates: Compare how different loans offer different rates.
· Features: To make the most of your home loan, consider which features you’ll benefit from the most.
· Fees: Mortgages often include a number of upfront fees, such as application fees, legal fees and settlement fees. There’s usually also a yearly service fee and administration fee.
We also offer a number of home loan related financial calculators, including the following:
So how do I choose a suitable option?
When choosing your loan, it’s important to consider your spending habits first. InfoChoice’s comparison tool can help you determine what your costs will look like across five years, and you can choose which features you’d like to include in your comparison.
Start comparing home loans today to find a mortgage that matches your financial situation.