You may wonder if the Reserve Bank of Australia (RBA) is setting the benchmark cash rate for lenders to follow, then why aren’t lenders strictly following this. It’s true that in reality many lenders make moves independently of the RBA, so it’s vital that you seek out the best home to suit your personal needs.
To find the best Australian home loans for your circumstances, work out whether you wish to have a fixed rate or a variable rate home loan. Likewise, you may prefer to make ‘interest-only’ or ‘principal and interest’ (P&I) repayments.
Fixed rate loan
With a fixed rate home loan, the interest rate is set in stone for an agreed term, usually from 1 to 5 years. Be aware, there are restrictions with a fixed loan. For example, your lender may limit the amount of additional repayments you can make, which may prove less appealing if you’re aiming to pay off your home loan sooner rather than later.
Variable rate mortgage
With variable rate Australian home loans, the interest rate fluctuates in tandem with a host of national and international factors such as changes to the RBA’s official cash rate. Variable rate home loans usually offer the flexibility of making extra repayments, which is useful if you plan to pay off the mortgage rapidly.
Principal and Interest (P&I) repayments
With a P&I option, the repayments will be higher than with an interest-only Australian home loan, as you’re paying the interest liability, and the capital as part of your repayments. This is a strategy worth considering if you plan to own your home outright.
If you choose to make interest-only payments, you won’t chip away at the capital. As a consequence, repayments are lower than with a P&I loan. Generally speaking, interest only repayments are designed for investors, who aim to profit from the income and capital growth generated by a well-located, quality investment property.
Australians are spoilt for choice when it comes to picking a home loan. Websites such as Ratecity.com.au offer home loans from a range of banks, non-banks, credit unions and building societies, as well as a large selection of home loan features to help you compare some of Australia’s best home loans.