Understanding Different Types Of Home Loans & Mortgages

There are a number of different types of home loans available. The one that is right for your requirements will entirely depend upon your circumstances. However, most of the lenders provide these various kind of Home loans but interest rates can be varied between different lenders. As home loans are usually a long-term debt, even small differences in interest rates can make a big change to the total amount you will pay on your loan over its lifetime.

The Standard Types Of Home Loans:

• Variable Rate

A home loan interest rate that fluctuates according to the official cash rate set by the Reserve Bank of Australia. The rate can go up or down over time, varying your repayments. These loans allow for more flexibility and options.

• Fixed Rates

A fixed rate home loan is a home loan with an interest rate that does not change for a set period (also called a ‘term’). Different banks offer fixed rate home loans with terms of 1–5 years.

A fixed interest rate is an alternative to a variable interest rate. Lenders can choose to change variable rates over time in response to market changes, such as a shift in the cash rate set by the Reserve Bank of Australia.

You can pay a rate lock fee for a fixed rate so it will not change as a result of such developments, which gives you some certainty about what your repayments will be.

• Introductory Rate Or Honeymoon Rate

An introductory rate offered to entice borrowers with a low advertised rate for the first few months of the loan. After the honeymoon period, the loan reverts to the Standard Variable Rate offered by the lender.

• Split Loan

A home loan in which a predetermined portion of the loan is locked in at a fixed interest rate and the rest comes with a variable rate of interest.

• LVR (Loan To Value Ratio):

This is the maximum proportion of the value of your home that can be loaned out to you. For example, a bank may approve your loan for 80% of the property value, in which you must pay the remaining 20% as your deposit.

• Lenders Mortgage Insurance (LMI):

Insurance that the loaning institution takes out in case of default from the borrower, which the borrower must pay for. Usually applies to home loans with a higher LVR (more than 80%).

• Stamp Duty:

The state or territory government’s tax calculated on the borrower’s loan amount.

• Negative Gearing:

When the income from an investment property is not enough to pay the interest on the home loan for that property, negative gearing is currently available as a tax deduction against that income.

• Offset Account

A savings account linked to your loan to offset the interest charged on your loan. The money (or credit) in your account is offset daily against your loan balance, which reduces the daily mortgage interest charges.

• Pre-Approval

An initial approval process where the bank provides a borrower with an estimate of how much they could borrow based on information they have provided to the bank.

• Redraw

A home loan feature that enables the borrower to withdraw funds they have already paid, usually this is a condition based on if they are far enough ahead on loan payments. This is not available on all loans.

• Settlement Date

The date on which transfer of ownership officially takes place – the buyer pays the rest of the purchase price, and the final legal documents are exchanged. It is also usually the date on which the buyer receives the keys and assumes possession.

Contact Mutual Loan & Finance for free consultation with our expert at 0433 233 220.

You can submit your details by link here or also mail us at: info@mutualloan.com.au