Residential Loan

Home Loans with Variable Interest Rates

This is a common offer by banks and has been used by many people to buy their first homes. These loans have repayment periods of up to 30 years and are regularly used by home buyers today.

Don’t be caught by start-up lures!

Often lending institutions will offer a discounted start-up period with lower interest rates to motivate you to choose the loan.

The benefits of this discount (or honeymoon period) are short-lived as the remaining years on your loan are charged at a standard variable rate.

Advantages

>>Discipline – regular monthly, fortnightly or weekly repayments help you with budgeting.
>>Redraw – most institutions will allow you (subject to terms and conditions) to withdraw additional repayments you have made over and above the minimum repayment.
>>Offset – it may have the ability to offset credit balances held in other accounts at the same institution against the principal of the loan.
>>Extra repayments – these are usually allowed at any time.

Disadvantages

>>The interest rate is variable (apart from any start-up period) and the loan will be subject to interest rate fluctuations.
>>The interest rate is always higher than Low Frills Home Loan rates

Low Rate Home Loans – No Extras!

One of the most popular loans, the Low Frills Loan has the lowest running costs – and less extras – so you pay a lower interest rate. Before you choose this loan make sure that you don’t need any extras (such as fee free credit cards and accounts etc) and compare the costs of getting them separately.

Advantages

>>Discipline – regular repayments help you with budgeting.
>>The interest rate is always lower than traditional loans.
>>Extra repayments are usually allowed.

Disadvantages

>>Money held in normal savings accounts with the same institution will not reduce your home loan rates.
>>The interest rate is variable and you are vulnerable to interest rate fluctuation.
>>Other facilities such as loan redraw may not be available.

Fixed Term Home Loan with Fixed Interest Rate

This loan has a set interest rate for a period of time. This means you know exactly what your repayments will be for your fixed rate term.

If you are unsure about whether to take a fixed or variable rate – you should consider a Split Loan.

Advantages

>>Fixing the interest rate for a period of time insures against future rate rises.
>>It is easy to budget for the same regular repayment each month.

Disadvantages

>>If interest rates fall you may pay more for your loan than borrowers on variable rates.
>>Most lending institutions penalise you for making additional repayments.
>>You may be penalised if you pay off your home loan before the due date.

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