Basic residential home loans generally consist of lower fees along with a lower interest rate in exchange for no/basic features which are common in other home loans. For example, a basic residential loan could be 0.20% p.a. lower on its interest rate but with no offset account – which could be a challenge for a few because offset accounts can be very handy depending on your individual situation.
However, many residential home loans come with redraw facilities, which do act like an offset account but have a few key differences. You should always do your research and compare various residential home loans to find one that suits your individual needs whether it is a basic or standard home loan.
There are several types of residential loans available, but you need to consider the best option that meets your needs in the long run. There are two major types of home loans:
Variable Interest Rate
The variable interest rate is one of the standard loans and very popular in Australia.
The minimum size of the repayments will fall, as soon as the interest rates decrease.
You can pay extra repayments on your standard variable loans. This way you can cut down on the length and the cost of the mortgage.
You will have the flexibility to switch to a different lender or home loan offer if you are on a variable interest rate, without paying any break fees.
On the other hand, if the interest rates rise, the repayment increases too.
Always make sure to take into account the potential interest rate increases. This is because increased loan repayments due to rate rise could influence your personal budget
Seek advice around the redraw facility on a standard variable loan. Make sure not to fall into it too much, or else it may cost you more to pay off your loan.
Fixed Interest Rates
Here, the interest rate is fixed for a certain period, say one to five years of the loan.
Regular repayments stay fixed regardless of the interest rates going up.
Your personal budget stays consistent during the fixed period because you know your exact repayment amount of your home loan.
You do not get any benefit if the interest rates decrease under the fixed term. Your repayments stay as it was at the time you fixed the loan.
There are limited opportunities for extra repayments during the fixed period.
You can face break fees if you exit the loan before the end of the fixed period.
Split Rate Home loans
Many borrowers consider this type of residential loan, where one part is variable, and the other part is fixed. It is you with the guidance of your broker who decides on the amount of variable and fixed. This way you benefit from the flexible loan opportunity.
You will benefit from the potential increase in interest rates and your regular repayments will vary less which makes it easier to budget.
You can repay your variable part of the loan quicker if you want.
Rise in interest rates will affect your variable loan portion.
Limited extra repayments on the fixed rate portion of the loan.
This is a basic summary on the residential home loans options. You should always remember that a residential home loan is a long-term commitment, and your personal budget may vary throughout the period. Therefore, it is important to consider the rate at every point.
Pointer Finance is your smart guide for everything to do with residential, self-employed, and SMSF loans. We’re experts in personal lending so you don’t have to be. We’ll keep an eye on the future while finding you competitive, flexible loan options with a speedy turnaround, so you’re not kept waiting.