When it comes to home loans, there are a lot of different home loan types available. However, not all of them are right for you. In this article, we will discuss the different types of home loans and which home loan is best for you.
1.Variable Rate Loans:
Many home buyers rely on the Reserve Bank of Australia’s cash rates and the subsequent fluctuation of home loan interest rates. This means that borrowers may have lower repayments in a certain month, but if rates rise their payments will as well.
This can seem like a gamble to some, yet many borrowers opt for this because Variable Rate Home Loans usually give them the ability to pay their loan faster through things like extra repayments, a redraw facility and an offset account.
- An extra repayments facility is available to allow borrowers to make additional payments on their loan above the regular monthly repayments. This saves money on interest and reduces the length of time required to repay the loan.
- If you make additional payments to your loan, you may be able to borrow some of that money back. This can be used for purchasing a new car, a family holiday or a home upgrade.
2.Fixed Rate Loans:
A fixed rate loan is a loan where the interest rate stays the same for a set period of time. This type of loan locks in your home loan interest rate for a period of 1-5 years, generally at a rate above the current variable. Fixed Rate home loans are great for borrowers who are on a budget or don’t want to deal with inclement interest rates. The advantages of a fixed-rate home loan are that the monthly repayments are predictable and it is easier to budget for. However, you may not be able to make extra repayments or switch to another home loan without paying a break costs fee.
3.Interest Only Loans:
The interest only loan provides an opportunity to pay only the interest minus the principal for a set period of time. This is a popular choice for property investors who are looking for negative gearing, as well as those hoping to make a profit by selling the property again, provided it doesn’t depreciate. First home buyers and low income earners may find an interest-only home loan suits their needs as it requires less upfront repayments.
However, it is important to note that this type of loan usually only has a term of seven years. After this period, the borrower will need to start making repayments on the principal as well as interest.
4.Low Doc Loans:
Low doc loans or low documentation loans are a perfect fit for freelancers, business owners, or self-employed people who don’t have some of the standard papers usually used to apply for a loan. An income declaration and other financial statements, such as bank statements and business activity statements (BAS), are usually enough to assess the credibility of the borrower. Low doc home loans generally carry higher home loan rates and fees compared to other loans.
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Conclusion
So, which home loan type is right for you? It depends on your needs and financial situation. But if you want to find out more about each type and see how they fit into your long-term goals, call us at 0432 593 753 or visit our website. You can also use our home loan repayment calculator or home loan mortgage calculator.