Choosing the right home loan can be daunting, especially for first-time buyers. With so many lenders and mortgage options available, how do you know which one suits your needs?
A 1st Street Mortgage Broker can help you navigate the choices, finding the best loan for your financial situation and goals. To get you started, here’s an overview of the most common home loan types.
Principal and Interest Loans
Most home loans consist of two parts: Principal, which is the amount you borrow, and Interest, the cost of borrowing that money.
With a Principal and Interest loan, your repayments cover both the loan balance and the interest. Alternatively, you can choose an Interest-Only loan, which means you only pay interest for a set period. However, keep in mind that interest rates on interest-only loans are often higher than on principal and interest loans.
Variable Rate Home Loans
A Variable Rate home loan has an interest rate that can change over time, typically in response to movements in the cash rate set by the Reserve Bank of Australia (RBA) and other economic factors.
Many borrowers prefer variable loans because of their flexibility. If the RBA cuts the cash rate, your interest rate may drop, which could lower your repayments. However, if the cash rate increases, your repayments could rise as well.
Fixed Rate Home Loans
With a Fixed Rate Home Loan, your interest rate remains the same for a set term, usually between one and five years. This option is ideal for those who want certainty in their repayments, as you’ll know exactly how much you’ll pay each month, fortnight, or week.
A fixed rate loan can be particularly useful if you think interest rates will rise in the future. However, if rates decrease, you won’t benefit from the lower rates. Be aware that switching to a variable rate or refinancing before the end of the fixed term may incur a fee.
Split Home Loans
A Split Home Loan allows you to divide your loan into two parts: one with a fixed rate and the other with a variable rate.
This option provides a balance, offering the security of fixed repayments for part of your loan while still benefiting from any interest rate reductions on the variable portion. It’s a great choice if you want to manage risk while maintaining some flexibility.
Other Home Loan Features to Consider
Basic vs. Standard Loans
A Basic Home Loan typically offers a lower interest rate but fewer features than a Standard Home Loan. These loans are often simpler and more affordable, but they may not include perks like offset accounts or extra repayment options.
Packaged loans
A Packaged Loan bundles your home loan with other financial products, such as a credit card or transaction account. The benefit is usually a discount on your mortgage or the waiving of certain fees. However, packaged loans often come with an annual fee, so make sure to weigh the cost against the savings.
Offset Accounts
An Offset Account is a savings or transaction account linked to your mortgage. The balance in this account offsets your loan balance, reducing the amount of interest you pay. For example, if you have $50,000 in your offset account and a $500,000 mortgage, you’ll only pay interest on $450,000.
Redraw facility
A Redraw Facility allows you to make extra repayments on your loan and access those funds if you need them later. While the extra money reduces your interest charges in the meantime, you can withdraw it when necessary.
Line of credit
A Line Of Credit is similar to a credit card but secured against your property. It allows you to borrow up to a certain limit, with interest charged only on the amount you use. This can be useful for larger expenses, such as home renovations or travel.
Low-Doc Loans
Low-Doc Loans are designed for borrowers who may have difficulty providing the standard documentation required for a traditional loan, such as self-employed individuals. These loans generally have higher interest rates and may come with more restrictive terms than regular home loans.
As your 1st Street Mortgage Broker, we can help you find the perfect home loan to suit your needs and goals. Contact us today to discuss your options, and let’s work together to secure the best loan for your situation.
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Your home is probably the biggest purchase you will make in your life- it can…
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