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Home loan types for those chasing the Australian dream
Release Date:
2017-01-10
Description:
 
If you’ve already set your mind on finally purchasing your own house instead of renting or living with your relatives, then you’re looking at home loans to fulfil that goal – your very own Australian dream of owning a place to call your own.

So, what are the types of home loans available for you? To help understand the right one for your needs, let’s take a look at the key home loan types and how they work. The mortgage marketplace boasts hundreds of different home loans, but they are fundamentally based on two key things:

Principal – the amount of money you borrow.

Interest – how much you need to pay to borrow the money. It is calculated on the principal.

There is a wide variety of home loan structures and features you can choose from, and it is worth understanding what’s involved with each to make an informed decision.

Fixed rate home loans. This type of loan allows for a fixed repayment of a loan for a set period, typically between one and five years, which makes budgeting and repayments easier for borrowers since they are protected from any increase in the market rates. The downside to this is if the rate falls, you’ll be forced to pay up more than necessary.

Variable rate home loans. Currently the most popular type of home loan in Australia. The interest rate you pay will vary in line with the movements in market interest rates, so you’ll expect the repayments to vary as well, whether it goes up or down over the course of your home loan.

Split loans. Many lenders also offer this service where you can fix one part of your home loan, while the remaining portion has a variable rate. This may allow you to benefit from the best of both worlds – a protection from rising rates while still capitalising on the ability to benefit from any rate cuts that might happen throughout the span of mortgage repayments.

Within the categories of fixed, variable, and split home loans, there are other types of home loans that you can consider.
  • Package loan. Sometimes called an ongoing discount home loan. This type combines a home loan with other financial products, typically a credit card and a transaction account.
  • This type of loan involves a transaction or savings account that is linked to your home loan. Instead of getting interest on the balance of the offset account and compensating separate interest on the full balance of the outstanding home loan. The balance of the offset account will be deducted from the value of the home for calculating interest.
  • Line of credit. This is generally a credit card with a big limit, but your home will still act as security for the home loan. The card allows you to draw from a fixed amount at any time, to pay for whatever you want.
Where to look for the right provider

There are many home loan providers you can choose from. This includes banks, credit unions, and specialty third party providers. Look for a provider that has multiple services and the most competitive rates, and don’t forget to read the fine print. The mortgage loans from Newcastle Permanent Building Society, for instance, offer fixed, variable, split and other types of home loans if you’re looking to buy your first home or invest in a property.

End Note

Navigating through the process of mortgage can sometimes be confusing with all the choices available, but with research, commitment, and help from professional brokers, your Australian dream won’t be so far off.
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