April 01, 2014
Search the internet and you will likely find more than 100 different lenders offering loans to finance properties.
Loans all come with different interest rates, setup fees and ongoing fees, making them tough to truly compare. Basically though, loans can be divided into two main categories – variable rate and fixed rate. Your personal circumstances and future plans will determine which category best suits your needs.
The interest rate on variable rate loans will move up or down over time, usually in close alignment to movements announced by the Reserve Bank each month. Most lenders offer a standard variable rate loan, though these are rarely taken up by customers. More commonly, customers are usually offered loans at a discount to the variable rate via a “basic” home loan or a “packaged” home loan. Repayments to variable rate loans can vary and most lenders allow customers to make extra repayments to the loan and also redraw those extra payments if needed.
“Basic” loans usually have a one-off loan application fee and a zero or small ongoing monthly fee, whilst “packaged” loans usually attract an annual fee (in lieu of an application fee) as well as greater interest rate discounts, fee-free transaction accounts and fee-free credit cards.
Frequently, the transaction account offered with packaged loans may be an “offset” transaction account, designed to reduce the overall interest charged on your home loan.
Variable rate loans include “Lines of Credit”, also known as equity loans or portfolio loans. Essentially, a Line of Credit is like a large credit card or overdraft facility, for which customers only need to meet the interest charged each month provided the facility balance remains below a pre-determined limit. Whilst they can be appropriate for investment purposes, I do not recommend Lines of Credit for more traditional home loan purposes.
Fixed rate loans are loans for which the interest rate is fixed for a pre-determined period, usually between one and five years. Loan repayments are also fixed during this period, making fixed rate loans attractive for those customers who want this certainty. Note however, that the ability to make extra repayments is usually limited, extra repayments cannot usually be withdrawn/accessed and heavy break costs can apply in event the loan is closed or refinanced before the expiry of the fixed rate term.
Certainty and flexibility is important to many of my home loan customers and recently, a high number of customers have chosen to split their loans between fixed and variable.
My role as a mortgage broker is to help you to decide which lender and loan combination best suits YOU.
Call us to arrange a free, no obligation appointment.
Tamara on 0409 905 113 firstname.lastname@example.org Mark on 0403 577 287 email@example.com