An important decision you need to make when you’re buying your first home is the type of loan you want and the features you need. I’ll give you a brief overview of the most popular options:
Standard variable loans are the most popular home loan in Australia. Interest rates go up or down over the life of the loan depending on the official rate set by the Reserve Bank of Australia, funding costs and the lender’s decisions. Your regular repayments pay off both the interest and some of the principal.
The interest rate is fixed for a certain period, usually the first one to five years of the loan. This means your regular repayments stay the same regardless of changes in interest rates. At the end of the fixed period, you can decide whether to fix the rate again, at the current rate or move to a variable loan.
Your loan amount is split, so one part is variable, and the other is fixed. You decide on the proportion of variable and fixed. You enjoy some of the flexibility of a variable loan along with the certainty of a fixed rate loan.
Popular with self-employed people, these loans require less documentation or proof of income than most, but often carry higher interest rates or require a larger deposit because of the perceived higher lender risk. In most cases you will be financially better off getting together full documentation for another type of loan. But if this isn’t possible, a low doc loan may be your best opportunity to borrow money.
What features do you need?
Along with deciding on the type of loan you want, it’s important to look at the features available with certain types of loans. Usually, the more features you have, the more expensive the loan is – so don’t go overboard with things that you aren’t going to need or use. Features include:
- Interest only repayments (usually limited to investment loans)
- Ability to make extra repayments
- Weekly or fortnightly repayments
- Redraw facility
- Repayment holiday
- Direct debit
- Offset account
If you need a hand working your way through the options, give me a call. I’m happy to help you understand what’s available, your options and what might work best for your circumstances.