What loan is right for me?

There are many home loan options available. These may include the payment type (eg. ‘principal and interest’ vs ‘interest only’ payments) and the type of interest rate.

Generally, when you take out a home loan, you have two choices: a fixed interest rate or a variable interest rate.

Fixed-rate mortgages

With a fixed-rate loan, you know exactly how much you’ll pay per fortnight or month for the fixed period of the loan (usually one to five years).

With interest rates at an all-time low, and many lender’s fixed rates lower than their variable options, locking in an interest rate on your home loan to guard against possible future fluctuation may be attractive.

Pros:

· Repayments do not rise if the official interest rate rises

· Provides peace of mind for borrowers concerned about rate rises

· Allows more precise budgeting

Cons:

· Repayments do not fall if rates fall

· Allows only limited additional payments

· Penalties may apply for early payout of the loan

Variable rate mortgages

Repayments can change during the life of a variable-rate loan, so you may pay more or less as interest rates rise or fall. If you’re fairly sure that rates are set to fall, this is a good option.

A variable interest rate can go up or down as the lending market changes (for example when official cash rates change).

Pros:

· More loan features may offer you greater flexibility.

· It's usually easier to switch loans later, if you find a better deal.

Cons:

· Makes budgeting harder as your repayments could go up or down.

· More loan features could cost you more.

Principal and interest mortgages

In this mortgage, you are paying the amount lent to you plus the interest.

Interest-only mortgages

With interest-only, you are paying just the interest on the loan – you are not paying off any of the original principal.

Split home loan (fixed and variable)

You can choose to have part of your loan at a fixed rate and the other part can be at a variable interest rate. If rates do fall, the interest will go down on the variable part of your loan, but you aren’t taking as big a risk should rates rise.

Please contact us if you have any questions or concerns about your current loan structure of if you are thinking about getting into the property market and we will do an assessment for your needs.