Compare prinicipal and interest loans

Find home loans from a wide range of Australian lenders that best suit your needs, whether you're investing, refinancing or looking to buy your first home. Compare interest rates, mortgage repayments, fees and more. - Data last updated on 20 Jul 2019

Compare prinicipal and interest home loans

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Principal and interest loans

When you want to buy a home, you need to get a handle on the financial options that may be available to you. If you're already an owner-occupier, you could have equity in your home that will mean a profit when you sell it, paying off the principal loan but leaving you enough money to put down a deposit for another property. If you're looking to get onto the first rung of the housing ladder you'll need a deposit that could be quite substantial. The deposit percentage of the sale price will depend on which lender you choose, so it's worth shopping around to get a deal that suits your financial situation.

What are principal and interest loans?

When you take out a loan for a property, you receive a lump sum to buy it. This goes to the seller, who will pick up the costs of the estate agent and their solicitor, whereas you will have to pick up the costs of a surveyor and your own solicitor. You could consider asking a lender to add these costs into the overall loan if you are a little short of ready money because you've put down a deposit. Remember, you will be charged interest on paying those fees as well as for the principal loan.

How do principal and interest loans compare to other similar products?

Buying a house is probably going to be the biggest purchase you will make in your lifetime, however many times you do it, and mortgage companies work to offer you better rates than if you went to a bank or tried to take out a large loan from somewhere else that would charge much higher rates. That doesn't mean that you shouldn't talk to banks – it's you who will decide on what the best and most affordable offer is. Finance companies want your business, so take the time to explore offers and deals.

How do repayments work for loans?

Most home loan repayments are made up of a mix of paying interest on the principal loan and making a contribution to paying off that principal. At the end of the loan term, you will be the owner of the property outright. The loan could take many years to pay off, which is what you would expect, but it depends on your circumstances and what stage you're at on the property ladder. You can choose a variable interest rate, where your payments could increase or decrease according to interest rate movements, or a fixed rate where you know exactly what you pay every month. You could also choose to split between fixed and variable – a split rate. Interest only repayments may be offered, but you won't pay anything off the principal loan with this, so you need to consider how you will repay that at the end.

What are the risks and rewards involved?

If, for whatever reason, you fail to keep up payments, your home could be repossessed; however, if you make your mortgage payments as you should you will eventually be the proud owner of a property worth much more than you originally paid for it.

FAQs

A guarantor is someone who provides a legally binding promise that they will pay off a mortgage if the principal borrower fails to do so.

Often, guarantors are parents in a solid financial position, while the principal borrower is a child in a weaker financial position who is struggling to enter the property market.

Lenders usually regard borrowers as less risky when they have a guarantor – and therefore may charge lower interest rates or even approve mortgages they would have otherwise rejected.

However, if the borrower falls behind on their repayments, the lender might chase the guarantor for payment. In some circumstances, the lender might even seize and sell the guarantor’s property to recoup their money.

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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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