- Posted 24 May
- 0 Comments
Most people make low interest rates their first priority when researching home loans. Of course rates are important, but there are a few other factors you should consider to make sure you get the right loan to fit your family’s needs.
Different types of mortgages work best for different personalities and financial situations. Check out these mortgage options to see which one may work best for you.
Fixed rate loans
A fixed rate loan works well for people who like predictability and want to plan ahead. With a fixed rate mortgage you’ll always know what you owe, and your payment amount will be steady. The amount will not be affected by interest rate fluctuations or market variations.
Another positive for fixed rate loans is that you will build home equity at a faster rate, compared to other types of loans. The negative aspect is that should rates fall, you won’t benefit from the changes. Also, fixed rate loans often have penalties for early repayment, so read the fine print carefully.
Variable rate loans
If you are the type of person who regularly puts money away and aren’t too worried if your monthly payment fluctuates some, you may benefit from a variable loan. With a variable rate loan, the amount you owe each month will fluctuate based on market interest rates.
Variability can be a good thing if interest rates take a downward turn. You’ll also have the option of setting up an offset account, which is a separate transaction account linked to your home loan. Keeping just $10,000 in an offset account could save you nearly 4 years and $38,000 in interest on your home loan.
Variable loans also let borrowers pay off their loans early or make extra payments. So if you receive a bonus other unexpected income, you can put it towards paying your mortgage faster.
A split loan is actually a mortgage consisting of two loans – one fixed and one variable. The fixed part of the loan offers some stability and keeps your monthly payments from fluctuating too much.
The variable portion lets you benefit at least somewhat when interest rates dip lower. You’ll also be able to make extra payments on this part of the loan. The downside is that you still may face a penalty if you want to pay off the entire mortgage early, because of the fixed portion.
Interest only loans
An interest-only loan is a good option for property investors. The way these loans are structured, for the first one to five years you’ll pay only the interest portion of the loan.
This means you aren’t building home equity during the early years of the mortgage, but it also keeps your payments smaller than a traditional loan. The lower monthly payments let you hold onto your cash for other investments, but still take advantage of tax deductions associated with ownership.
Are you a first time home buyer or planning for your next home loan? Want to speak with an expert about which loan is right for you? Contact Australian Credit and Finance today and learn about your options.