The Right Type of Home Loan for You

January 21, 2014
Mark Hevron

There are many different types of Home Loans available to Australian borrowers.


A home loan is the actual structure used for the borrowing from the financial institution.


Some people refer to their home loan as their “mortgage”.


The word “mortgage” is defined as:

noun  mortgage A legal agreement by which a financial institution or similar lends money upon which interest is payable in exchange for taking the borrower's property as security. Upon full repayment of the debt, the title to the property is returned to the purchaser. A form of security.

"I put down a hundred thousand in cash and took out a mortgage for the rest"

verb: mortgage convey (a property) to a creditor as security on a loan.

"The estate was mortgaged up to the hilt"  


So, technically, you acquire a mortgage when you take out a home loan. The Lender requires it to secure your borrowing…  




Variable Rate


If you choose a variable home loan, the interest rate charged by the Lender moves up or down, dependent upon “market forces” and the Lender’s policy. Interest rates in Australia revolve around the official cash rates set by the Reserve Bank of Australia (RBA). (Blog #1 Why the interest in the interest rate?)

Example: You borrow $300,000 from XYZ Bank as a variable home loan with an interest rate of 4.3% in February 2014. In March 2014, the RBA increase the official cash rate by 0.20 %. XYZ Bank passes this increase on to its’ customers, resulting in your home loan rate increasing to 4.5% and your repayments increasing accordingly.


Fixed Rate


With a fixed rate loan the interest rate, and therefore the repayments, stay the same for the agreed timeframe. Lenders may offer a fixed rate for periods of up to ten years. Fixed rate loans will normally have penalty clauses and can be expensive if you wish to pay out your loan early.  


Combination or Split Loans


A combination or split loan offers the ability to set part of the loan as a variable rate loan and the other part as a fixed-rate loan. If you are not sure which direction interest rates will go, this is like having a bet each way.


Home Equity Loan or Line of Credit


This type of loan is like a credit card with a massive limit. It will give you access to the equity (amount not borrowed) in the value of your home. Any payment you make can be drawn back out as long as you are able to pay the interest charges. Not recommended for those who cannot control their spending!


Bridging Finance


As the name implies, it is a loan that serves as a bridge, enabling purchase of a new property before the existing one is sold. Basically you will have two home loans for a period of time. Not as expensive as used to be but not for everyone.


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While all reasonable efforts have been made to ensure that the information contained in this Blog is accurate and up to date, changes in circumstances after the date of publication may impact upon the accuracy of the information. Nothing contained in this Blog shall be construed as conferring any licence or right under any trade mark or in relation to any copyright of Mortgage Choice Ferndale WA or any third party. Any services referred to on this Blog are only available to Australian residents and are not available to any person who is a resident of any other country. Subject to any implied terms which cannot be excluded by law, Mortgage Choice Ferndale WA and its directors, officers and employees, do not accept any liability for any loss or damage, however caused, to any person arising from the use of or reliance upon the information contained in this Blog. Mortgage Choice Ferndale WA does not accept liability for information contained in websites linked to this Blog.    

Posted in: Home loans

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