There's a world of choice when it comes to home loan repayment options.
Just as your home reflects your personal style, your home loan repayments can also match your needs and circumstances - and home buyers are often surprised at the variety of options available.
Principal plus interest
Principal plus interest repayments are the most popular choice among home owners, and with good reason - each regular payment is comprised of interest plus a chunk of the loan balance.
In the early days of your loan, interest is likely to make up a large proportion of the payment. As the principal gradually reduces, the interest component will also taper off and the loan repayment component accelerates turning the tide in your favour so that the loan is completely paid off.
One of the easiest ways to manage principal plus interest home loan repayments is by timing the payment to coincide with your regular pay day. Repayments are generally worked out on a monthly basis however most lenders will offer the option of fortnightly or weekly repayments and this is something to discuss with your Mortgage Choice broker.
Choosing an interest-only loan will lower your monthly payments as you aren't paying anything off the loan principal. This may sound like a budget-friendly option but it's something to be considered with care. Interest-only may be well-suited to investors planning to sell a property at a profit, but as a home owner, it's worth aiming to have your place paid off in full at some stage.
Take a look at our repayments calculator to see how your loan payments could vary between interest-only and principal plus interest options.
Be aware too, lenders generally only permit interest-only payments for a set period (usually five years). After this, you'll need to start making principal and interest repayments – or demonstrate to your lender why you should remain on interest-only payments.
If you have a variable rate loan you certainly aren't limited to the regular payments required by your lender. A feature worth looking for is the flexibility to make fee-free extra repayments at any time. These can be the key to paying off your loan sooner. Some fixed rate loans permit additional repayments – often up to a certain limit, and you may want to add this to your loan wish list if you're thinking about fixing your rate.
Happily, home owners aren't restricted to choosing between fixed or variable. An alternative is to ‘split' your loan. This lets you fix part of the loan, while the rest remains variable. It's a great way to benefit from the flexibility of a variable rate – with the freedom to make extra repayments, while having the certainly that comes with a fixed rate.