Choosing the Right Home Loan
Choosing the right home loan will make a big difference to your loan period and the overall cost of your loan. A good starting point is to evaluate the advantages and disadvantages of different home loan products. On this page, you will find a summary of the pros and cons of each home loan type – for further information, click on the heading.
Comprehensive Evaluation of Different Home Loans
To get a more comprehensive evaluation of the home loan products available in today’s lending market, talk to your local mortgage broker by calling us on 13 LOAN ( direct on +61 2 9249 3739) or email us the form below and we will contact you within 2 business hours.
| Pros |
Cons |
| If interest rates drop, repayments might drop. |
If interest rates rise, repayments will rise along with the amount of interest paid. |
| Pay off your home loan faster by making extra payments without incurring penalties. |
Extra features means you may pay a higher interest rate than a basic variable loan. |
| Additional repayments can usually be taken back by you. |
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| Pros |
Cons |
| Lower interest rate than the standard variable loans (usually around 0.5% less). |
Usually not as flexible as standard variable loans. |
| Repayments are lower than standard variable loans. |
Offer less features. |
| If interest rates drop, repayments also drop. |
If interest rates rise, repayments will rise along with the amount of interest paid. |
| Pros |
Cons |
| Borrowers have certainty of fixed repayment amounts even if interest rates rise. |
Reduced flexibility – if interest rates fall, the repayments will not, as the rate remains fixed. |
| The interest rate is usually cheaper than more flexible products. |
Should you sell your property during the fixed rate period and want to clear the loan in full, you could be up for fees, depending on where rates have moved from the time you originally fixed your loan. |
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Additional repayments are limited, and exceeding these limits may incur costs and fees. |
| Pros |
Cons |
| Borrowers can reduce the principal quickly by making extra repayments during the introductory period. |
Most banks charge penalties if you discharge these types of mortgages within the first 3-4 years after settlement. |
| Pros |
Cons |
| You can buy property sooner without waiting until you save a larger deposit. |
Stricter lending criteria makes approval more difficult. |
| Most come with features such as additional repayments and redraw. |
You are limited to certain types of properties. |
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As you are borrowing more money, you’ll pay more interest in the long term. |
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Mortgage insurance will be higher than “deposit” home loan products. |
| Pros |
Cons |
| If you lack sufficient proof of income in the form of pay checks or tax returns then low-doc and no-doc loans could provide the means to getting a home loan. |
Your interest rates are generally higher than standard loans. |
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Lenders will ask that you pay additional fees and charges, including ‘risk fees’. |
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You may have to pay lender’s mortgage insurance if you are borrowing more than 60% of the property value. |
| Pros |
Cons |
| You can complete the purchase of a new property before selling your existing property. |
Until your existing property sells, your interest payments will keep adding up. |
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You may be required to have sufficient equity in your current home to support the purchase. |
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| Pros |
Cons |
| Rates for non-conforming loans are much lower than they were in the past. |
Non-conforming rates are usually around 1-3% higher than a traditional loan, but rates depend on your level of credit impairment. |
| Non-conforming loans can be fully featured. |
You might have to pay a hefty deferred establishment fee if you pay out the loan early. |
| Great way to rebuild a poor credit rating. |
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| Pros |
Cons |
| If you have a larger number of loans and will utilise the other services offered under the package, then the discount amount may justify the fee. |
If you only have a few loans or lower loan amounts and won’t be utilising the other services, you may find that the fee you would pay may cost you more than any interest savings. |
| Pros |
Cons |
| Construction loans allow you to make payments in stages, thus ensuring you do not pay the builder for work they have not completed. |
If you are an owner-builder, you will be required to present detailed costings including quotes and all relevant insurances which may be time consuming. |
| You can save on repayments during construction as construction loans allow you to make the minimum repayments until construction or renovation is complete. |
As the loan is really just a version of a standard variable loan, your repayments and interest payments will increase with any interest rate rises. |
| Pros |
Cons |
| You can access cash as a lump sum, a regular stream of income or a combination of both to suit your needs. |
Interest rates are usually higher than average home loan rates. |
| You don’t need a current income to qualify. |
Because the interest builds up (or compounds) over the term of the loan, the debt can rise quickly, to the point where it may even be more than the value of your home. |
| You get to stay in your home and keep ownership. |
If you don’t maintain the property to a standard required by the lender, you may lose your no negative equity guarantee and the lender may be entitled to evict you. |
| You usually don’t have to make any regular repayments while you live in your home. |
The loan may affect your eligibility for a pension. |
| Pros |
Cons |
| In times of interest rate rises, you can hedge your bets by having the interest rate security of a fixed loan coupled with the repayment flexibility of a variable rate loan. |
If interest rates rise, the repayments on the variable portion will also rise. |
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If interest rates drop, the repayments on the fixed rate portion will remain on the higher fixed amount. |
| Pros |
Cons |
| You always have ready access to money, which makes this type of loan attractive to investors. |
The variable interest rate applies, leaving you open to the risk of interest rate increases. |
| You can make repayments as you see fit – interest only, regular principal reductions on top of the interest payments, larger lump-sum reductions etc. |
If the LOC is being used for your principal residence, it requires discipline to ensure that over time the principle/balance of the loans is reduced. |
| As long as the balance doesn’t exceed the approved limit, you are free to draw from and manage your LOC funds however you want. |
If there is equity within the facility, the temptation might exist to draw funds out for personal purposes in the hope that they will be repaid down the track. Apart from the obvious risks with this kind of decision, it may also create significant confusion when it comes time to do your tax return. |
More information and home loan help
For more information on how and where to find a better home loan deal from an extensive panel of Australian banks and secure mortgage lenders, or to speak to your local area mortgage expert, contact us on 13 LOAN (direct +61 2 9249 3739)
