Choosing a home loan is a big financial decision riddled with many choices. Often the more choices we are presented with the more confused and anxious we get. But despite the many home loan options in the Australian market there are three key points that can help you along the right path.
Generally speaking, home buyers have the choice of three broad home loan structures – variable, fixed and split mortgage loans.
Variable home loan
Variable home loans are the most popular type of home loan in Australia. The amount of interest paid against a variable loan is dictated by the lender, and also fluctuates as a consequence of national and international economic and bureaucratic factors – for example variable interest rates tend to move in tandem with changes to the official cash rate, as determined by the Reserve Bank of Australia.
Variable home loans are flexible meaning you can usually make additional mortgage repayments whenever you want. While home owners have no control over the loan interest rate, the reality is that variable loans are often cheaper than fixed rate home loans over the long term.
Fixed home loan
If the thought of rising interest rates sends chills up your spine, then the option to fix your mortgage loan might prove a more palatable alternative.
Fixed home loans commonly extend between one to five years in length and the rate never changes. As a consequence, fixed loans provide financial security if rates go up, but on the flipside, can become a burden should rates fall.
Split home loan
Split home loans let home owners fix some of the interest repayments, while the balance is charged at a variable interest rate. In other words, if rates soar, the fixed component of the loan will be protected against the increase. Alternatively, if rates head south, the variable component of the loan will allow the home owner to enjoy lower loan repayments.
There are literally hundreds of home loan options in the marketplace and it is important to do the research before deciding on a loan that is suitable to your circumstances. For some of the best rates available on the market compare home loans online. To work out your home loan budget use the RateCity home loan repayment calculator. Or for more information on home loans, consult our Home Loans Guide.