The right home loan for you


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Mar 21, 2012( 3 min read )

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Choosing the right home loan can feel like drawing straws. There as so many Australian lenders and once you choose one, you then have to decide on the different home loan types they are offering. That is why it’s essential that you carry out your own home loan comparisons so that you know what’s going to work best for you.

In Australia, standard variable home loan interest rates are partly influenced by the Reserve Bank of Australia (RBA). Lenders take into account the RBA’s official cash rate, but other factors help to influence rates too. Indeed, lenders may even push up interest rates if the Reserve Bank leaves official rates on hold.

This is a risk that borrowers face if they choose standard variable home loan interest rates. If you have a variable rate home loan, you need to be prepared for the possibility that standard variable mortgage interest rates could rise during the term of your home loan.

One of the major benefits of a variable rate home loan is the flexibility it allows you to have over a fixed rate home loan, especially if you plan to pay off your home loan quickly (or with lump sum payments). Many variable mortgages have features such as ‘mortgage offset accounts’ that can help you own a home faster.

Mortgage offset accounts

A mortgage offset account is like a transaction account linked to your variable rate mortgage. The money in your transaction account is offset against the balance of your home loan, so you only have to pay interest on the balance.

For example, if you have an outstanding balance on your mortgage of $400,000 and your offset account has $50,000 in it, you will only pay interest on $350,000 ($400,000 minus $50,000). There may also be tax benefits attached to mortgage offset accounts that you should discuss with your accountant.

Fixed rate home loans

Statistically over the last twenty years, variable rates have been lower than fixed rates in Australia. However, over a longer period, Australia has experienced extreme inflation and recession. When this happens, using a 1 year fixed, 3 year fixed rate or longer, can be a good option as interest rates will start to rise.

Use the RateCity home loan comparison tool to compare fixed rate and variable rate home loans and the repayment calculator to estimate the difference in overall loan types. 

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^Words such as "top", "best", "cheapest" or "lowest" are not a recommendation or rating of products. This page compares a range of products from selected providers and not all products or providers are included in the comparison. There is no such thing as a 'one- size-fits-all' financial product. The best loan, credit card, superannuation account or bank account for you might not be the best choice for someone else. Before selecting any financial product you should read the fine print carefully, including the product disclosure statement, fact sheet or terms and conditions document and obtain professional financial advice on whether a product is right for you and your finances.

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