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Before, you could only get a home loan from your existing bank. These days you have many options — you can apply for a home loan with different banks, a credit union, even online. If you’re considering getting a home loan, you first need to have an idea of your options.
In general, you have the following choices.
The Variable Rate Home Loan
The most common home loan type in Australia, a variable rate home loan features variable rates that are significantly lower than a fixed rate home loan. With this loan type, repayments may be affected by having your interest rate raised or reduced if the Reserve Bank modifies the current cash rate or if your lender adjusts your loan term.
This is ideal if you want flexibility like making additional repayments in advance and if you’re not that concerned if your interest rate suddenly increases or decreases over the life of your loan.
The Fixed Rate Home Loan
When making a home loan comparison in Australia, know that while a variable rate changes according to different factors, a fixed rate basically means that your interest rate or repayments are strictly locked in for at least one to five years over the life of your loan. Once the fixed term ends, you can either refix your home loan with a different rate or get a variable rate.
The primary advantage of fixed rate home loans is that your interest rate won’t go up — ever. However, you won’t also benefit from reduced rates when the bank or your lender suddenly decides to drop the rates. However, you can’t make advance repayments since these come with penalties and extra fees.
The Split Rate Home Loan
With this home loan type, the lender will split your loan in order that some of your borrowed amount is on a fixed rate, with the remaining amount on a variable rate. This is ideal if you want the flexibility of making advance repayments and redrawing on the loan’s variable component, some protection from rising interest rates, and room for budgeting payments on the fixed rate component.
Now that you have some idea of the home loan options available to you, you should find a reputable lender that will help you determine your budget for purchasing a home and the amount that you can potentially borrow.