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Home loan interest rate structures
Many people think that choosing the lowest home loan interest rates available is the best strategy.
However, you need to be looking at what is going to work best for you in the long run. What might save you a buck or two now might end up cost you more in the long-term. Selecting the right home loan interest rate can be difficult with so many options available these days. Let one of our home loan experts compare and find the best solution for you so that you can get onto the fun stuff: property hunting.
Our home loan experts will be there every step of the way to support you, from comparing rates to sorting the paperwork. Most importantly, we are constantly on top of the ever-changing home loan interest rates in the market, enabling us to consistently compare your home loan structure with the current market to ensure that you remain competitive at all times.
Variable home loan interest rates
The interest rates in a variable loan change during the loan life.
They fluctuate with the Reserve Bank of Australia’s official rate and funding costs. Your repayments will fall when home loan interest rates go down but unfortunately, it works the other way too. If rates rise, so do your repayments. Repayments in this interest rate structure will pay off the interest and the principle at the same time, and you can also make extra repayments if you wish which means you will pay off the home loan quicker. This is probably the most popular home loan type. With this type of home loan, you also have the option of a Basic Variable Loan which has a lower interest rate but will have fewer features and flexibility.
Fixed home loan interest rates
This type of home loan interest rate is as it sounds: fixed.
The interest rate does not change for a period regardless of the market. This means your repayments do not change for the nominated period either. Like any other financial product, this has its pros and cons. You do not get the benefit if the interest rates go down so in the end, you could pay more than if you had a variable loan should the market stay low. Extra repayments are also limited so you cannot shorten the length of the loan and there are penalties for exiting the loan early. The benefits are that it is unaffected by rising interest rates and gives you the ability to manage a consistent budget as the repayments stay consistent.
Split home loan interest rates
This home loan interest rate type is a combination of variable and fixed – the loan is split.
It is up to you how much of the loan is to be variable and fixed. This structure gives you the best of both worlds: the security of a fixed loan and the flexibility of a variable. It will have less fluctuation with the changing market making budgeting easier, and you can repay the loan quicker with the flexible repayments in the variable part of the loan. The disadvantage would be rate rises increasing repayments and exit penalties.
Interest only home loan
For a period (usually one to five years), you will only pay off the interest with an interest only loan.
This home loan interest rate means the repayments are lower as you are not paying off the principle at the same time as the beginning. After the period, you will pay interest and principle. As this is not fixed, you have the flexibility to make extra repayments and redraw principle if and when you wish. The downfall with this is that for the interest only period, you do not pay back any of the principles and will have larger repayments at the end of the interest only period. This loan type tends to be popular with investors as they can sell the property at the end of the interest only period to pay the rest of the loan back.