Home Loans
A home loan, or mortgage, is an amount of money borrowed from a financial institution for the purpose of buying a property. The money, along with interest accrued, is then repaid to the lender over a contracted period of time.
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Types of home loans
There are basically five different types of home loans available, featuring variants on interest rates offered. These are:
* introductory or 'honeymoon' rate
* variable rate
* fixed rate
* split loans (a mix of fixed and variable rates)
* interest-only
What is a 'honeymoon' rate?
A home loan with an introductory, or honeymoon, rate simply means you pay a lower rate of interest for the first couple of years before the repayments revert back to the original interest rate. This gives you a little more time to get on your feet and perhaps buy some new furniture for your home before settling down into paying off the home loan.
What is a variable rate?
A variable rate, as the name suggests, is one which fluctuates according the official cash rate set down by the Reserve Bank of Australia. During the contracted term of your home loan, a variable rate can go up, as well as down at any time, altering your set repayments..
What is a fixed rate?
Fixed loans generally allow a borrower to lock in an interest rate for a particular period of time, normally 1-5 years. Borrowers who choose a fixed rate are assured their repayments will be set for the fixed period and that if interest rates rise, their rate will remain the same. However if interest rates drop, a fixed loan will keep a borrower at the higher rate.
What is a split home loan?
A split loan is a pre-determined portion at a fixed interest rate and the rest at a variable rate of interest. If you want the assurance of a fixed rate but want to take advantage of rate drops, you could consider splitting your loan. Fixing a portion of a loan gives a flexibility trade off.
What is an interest-only home loan?
Interest only means simply that no principle repayments are required. You only have to pay the interest portion. Borrowers can't have more of their loan outstanding then they originally borrowed so interest repayments are required to keep the loan balance below that amount.
Doing your own home loan analysis
When analysing your requirements, remember it all boils down to whether your finances can cope with the variances of interest rate movements during the period of your loan.
Selecting home loan features
It is imperative to clearly understand your immediate needs and anticipate future needs, as some product features you may want come at a cost. You also need to understand the term of your loan, if the home loan has a redraw or offset facility and, if it does, how much does it cost to use.
Are Your A First Home Buyer?
If So then get information here on the First Home Owners Grant Here
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