April 29, 2011
And the winners are:
The variable rate home loan is Australia’s most popular. This loan calculates interest on your mortgage based on the Reserve Bank’s cash rate. If interest rates go up, you pay more, if you they go down you pay a less.
These loans come in two varieties:
- Standard Variable Home Loan: usually allow you to make extra repayments, and link to an offset savings account.
- Basic variable home loan: has less flexibility, but the interest rate is usually lower than standard variable rates.
Honeymoon rate mortgages offer a lower interest rate for the initial period of the loan. Make sure you use a home loan calculator to work out if this loan is right for you once the interest reverts to a higher rate.
Fixed rate home loans:
Your interest rate is fixed, usually for between one to five years so your repayments aren’t affected by interest rate fluctuations during this time. However, be aware that these mortgages usually charge a higher interest than their variable counterparts.
Line of credit home loans:
These loans are popular for their flexibility. Interest is often higher than other loans but you are afforded the luxury of being able to draw on a specified amount of money each month. However, their greatest appeal is also their biggest downfall as you can use your line of credit like a credit card, so you need to exercise restraint.
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