Which type of loan is right for you?
There are lots of different types of loans out there. We help you cut through the confusion to find the best loan for your situation.
To help you understand which type of home loan might best suit your needs, we’ve unpacked some of the main options and how they work.
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 (which is usually one to five years). This makes it easier to budget for repayments as you are protected from interest rate rises during the set fixed period.
Variable-rate mortgages
This is the most popular type of home loan in Australia. Repayments can change during the life of a variable-rate loan, so you may pay more or less as interest rates rise or fall over the course of the loan. If you’re hedging your bets that rates are set to fall, this is a good option.
Principal and interest mortgages
With this type of mortgage, you are paying the amount lent to you plus the interest.
Interest-only mortgages
With an interest-only mortgage, you are just paying the interest on the loan — you are not paying off any of the original principal.
Split mortgage (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.
Redraw facility
If you have a variable-rate loan and you make extra repayments, then you can withdraw that additional money when you need to. (NB: You can’t do this on fixed-rate loans).
Land loan
A land loan lets you buy a block of land without the pressure to build on it immediately. Land loans are usually variable interest for up to 30 years.
Construction loan
If you’re buying land, building or renovating your home, a 12-month construction loan can be the best way to go. With a construction loan, typically up to 90 per cent of the property value can be borrowed.
Non-PAYG loans
If you’re self-employed, a home loan can still be arranged using differing supporting documentation that show your ability to service a loan (this might include BAS and bank statements). With a non-PAYG loan, you may be able to borrow up to 80 per cent of the property’s value. Obtaining a non-PAYG loan involves you self-certifying your income, which requires verifications.
Equity Release
This type of loan allows you to convert a portion of your residential property ‘asset’ into cash or an income stream, while still allowing you to continue to live in your home.
Unsure of which mortgage option is best for you? We’ll be able to help determine which loan option suits your needs best through an initial consultation.