Home Loans Explained: Which one is best for you?

As leading Perth and Queensland builders, we know that there are many types of loans in the mortgage marketplace, which are applicable for our house and land packages.

Fundamentally however, these loans are all based on two things:

  • Principal: This is the amount of money you borrow.
  • Interest: This is how much you pay to borrow the money and is calculated on the outstanding principal.

The differences you will come across are the type of loan and the type of features that come with the loan. Here are some of the most common types of loans you will find available in Australia for Perth and Brisbane house and land packages.

Fixed rate home loans

This is where the interest rates and repayments are fixed for a set period, usually between three to five years. This makes it easier to budget, because you always know how much the repayments for your West Australian or Sunshine Coast house and land will be every month, regardless of any changes to the interest rates. Find out more about fixed loans

Variable rate home loans

This is the most popular type of loan in Australia for our Perth and Gold Coast house and land packages. The interest rate (and your repayments) will vary throughout the term of the loan, so they may rise or fall, depending on the interest rates set by the RBA and your lending institution. Variable interest rates are usually lower than fixed rates, but your repayments are at the whim of the interest rates. Find out more about variable loans

Split home loans

If you are not sure whether you want a fixed or variable rate home loan for your house and land in Perth or Brisbane, a split loan can give you the best of both worlds. You fix one part, and let the other part of your home loan vary according to market fluctuations. Find out more about split loans

Low-doc home loans

These loans are mostly for self-employed people who don’t have all the financial documents normally required to get a loan for a house and land package in Queensland or West Australia. A low-doc loan can be either fixed or variable. The rate is generally higher than a standard variable or fixed loan, but this is usually reduced after a few years if your repayments are on time.

Line of credit home loan

This type of loan allows you to draw from a fixed amount at any time, to pay for whatever you want, which could be shares, renovations or even a holiday.

A line of credit is like having a credit card with a big limit, but your home still acts as security for the loan. You only pay interest on the funds you use, but you need strong financial discipline to ensure that you pay off the principal, as well as the interest on this type of loan for your Perth, Brisbane or Gold Coast house and land.

Fixed, variable, or split loan?

There are several different types of loans, but many first home buyers choose either a fixed or variable rate loan. If you want the best of both worlds, you can hedge your bets and borrow a portion of money in a fixed rate loan, and a portion in a variable rate. That’s known as a ‘split loan’.

To help you decide which loan would be right for your Brisbane or West Australia house and land, here are the pros and cons of fixed, variable and split loan types:

Fixed rate

Variable

Split

The available interest rates are likely to be slightly higher than the variable rates on the market. Your interest rate and repayments are likely to be slightly lower than a fixed rate at any given time. One part of your loan will be fixed and the other can fluctuate with the market.
Your repayments will stay the same for the ‘fixed’ period of the loan. Your repayments may fluctuate with interest rate changes, this could be up or down so you will need to factor in a buffer. Interest rates can go up and affect the variable part of your loan.
Fixed repayments make it easier to budget. You could pay off your loan faster by making extra repayments. Allows you to have interest rate security with repayment flexibility.
If you ‘break’ the loan (perhaps by selling the property) during the fixed term, you’ll probably pay exit fees. There are unlikely to be any exit fees. Most lenders will let you set the portions on how it suits you.
You can’t usually make extra payments or re-draws without paying a penalty. You can make extra payments whenever you like. You can access variable loan features like redraws and extra payments, but have a little more certainty around your long-term budget.

The above are typical examples of the various types of loan features, however each loan has its own specific features, so check your loan carefully, before making your final decision.

West Australia house and land packages – Sunshine Coast home builders – Perth builders.

To find out more about our house and land packages on the Sunshine Coast or Perth, call us on 1300 904 040 or complete our online enquiry form.

 

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