Finding the Right Home Loan:

Many people think "hey, it’s a home loan - a loan is a loan - how hard can it be"

Home loans come in 27 formats, and that’s conservative. Many banks then have there own unique policy for these formats, And before you know it, there is a combination of several hundred Home loans.

It can be a maze that will ‘do your head in’. It is too large a topic to deal with in the space available. It is such a complex question, with very real costs to you it you get the choice wrong, that it is well worth consulting an experienced mortgage broker.
You must look ahead for 3 to 5 years and envisage exactly what you may want this loan to do for you. If you wish flexibility then that will often exclude loans with low interest rates and fees. Feature and flexibility come at a cost, but that’s cheaper that getting it wrong and having to refinance your loan to get a feature that, with a little informed forethought would have been chosen initially.

Decide what's important to you:

Honeymoon rate Redraw facility Extra repayments Portability Flexible payments Line of Credit Split loan option Offset account Loyalty discount Repayment holiday Top-up

With the preceding in mind, below we explore briefly three of the common home loan formats.

Fixed Rate - Its the toughest loan decision of all and can be a real "snakes and Ladders".

At a Glance: With fixed interest loans, the rate is set for a specific period - usually 1 to 5 years. At the end of that time, the loan reverts to a variable rate or you can renegotiate a further fixed term. By locking in your home loan, you are protected against rising interest rates.
Pros: Fixed rate gives you security of a set repayment. And if rates go up you are save money
Cons: Breaking the fixed loan early, for example, if interest rates fall, can cost you many thousands of dollars. It is a historical fact that for the vast majority of the past 20 years a choice of variable rate would have saved you money compared to fixed rate loans.

Ask yourself:

Do you need predictable repayments? Do you anticipate any major changes to your family arrangements, job or business? Do you believe rates will rise in the near future? Are you buying an investment property. If you answered yes to most or all of these questions, a fixed rate loan may suit.

Variable Rate Loans

Basic Variable

At a Glance: These loans are the banking equivalent of no-name supermarket brands. The big attraction is the low rate - often up to 1.5 % less than standard variable or fixed rates. For that you get a no-frills loan, with few if any features or flexibility compared to a "standard" loan.

Standard Variable

At a Glance: Most standard variable loans offer feature such as accelerated repayment options, Offsets, Redraw, Split loan capacity, variable repayment schedules and Portability.

Accelerated repayments options means simply, being able to pay significantly more than normal and not be penalised if you pay off your loan in say, 5 years.
Offsets, when used correctly can save you substantial amounts of money. Redraw, are great if you wish to redraw and use the money to do home renovations. It may be a God send if you need some money quickly for a family emergency. Of course to access a redraw you must have actually paid more than the required amount so that there is excess in the loan to redraw.
Portability can save you having to refinance your loan when you sell one home to immediately buy another home of equal or greater value.

Cons: Rates can rise or fall at any stage. Very sensitive to economic conditions. Picking the next move in interest rates is very difficult

Pros: Very flexible. The most popular form of loan Competition between banks. Big savings when rates low

The fact is that sooner or later most of us could need or want one or more of these features so they are worthy of due consideration. However there is no doubt that If you don't plan to use any of these features, you are paying for window dressing that you don’t need and it may be more appropriate in these circumstances to get a basic or fixed loan.

Split Loans

At a Glance: If you're not sure about interest rates, but dislike the inflexibility of a fixed rate, you can hedge your bets with a split variable/fixed loan.

Pros: You get the advantage of early repayments, redraw and mortgage offset, without exposing all of your loan to fluctuations in interest rates. How you split the loan is up to you but a 50/50 or 60/40 split is most common.

Cons: Beware that penalties apply if you quit the fixed portion of the loan early.

There are many many more home loan types and formats than we have space to explore here.

Very Importantly, Because buying a home is the largest single purchase most people make in their life, the loan for that purchase deserves careful and well informed consideration. Please consult an experienced broker to help you gather the necessary expert information about your home loan choice.