29 Feb 2024
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There’s no doubt that owning your own home can provide a great deal of personal satisfaction. For someone entering the housing market for the first time, it can seem like a complex journey with banks and lenders vying for your business with competitive home loan features and interest rates.
It may seem like a jargon-filled minefield but we’re here to help with an easy explanation of the main types of home loans available. At the end of the day, the decision will entirely depend on your financial goals and needs.
With interest rates at record lows, a variable interest home loan continues to be a popular choice with homebuyers.
A variable interest rate simply means that the interest rate can go up or down at any time over the term of your loan. The main advantage is that every time your Lender drops their variable interest rate, your minimum loan repayments also get smaller. This could leave you with spare cash for other expenses or even make extra payments on your loan to save on the interest you pay on your mortgage.
On the flip side though, you’re at the mercy of the interest rate changes which are hard to predict. If you’re on a strict budget, even the slightest increase in interest rates can affect your family expenses and lifestyle.
Looking for certainty with your repayments? Then a fixed rate home loan may be useful. It simply means that you can opt to pay a fixed interest rate on your home loan for a set period, usually 3 to 5 years.
The advantage of ‘fixing’ the interest rate guarantees that your mortgage repayments won’t go up as the interest rate will stay constant during the fixed term. The disadvantage though is your mortgage repayments also won’t go down if the Lender cuts their variable interest rate. That could be a missed opportunity to save.
You may also have to pay a ‘break fee’ if you decide to switch to a different home loan within the fixed term.
A split loan offers the best of both worlds. It offers you the flexibility of having a fixed rate on part of your loan and a variable rate on the rest. Repayments on the fixed part of your loan remain constant while you can still benefit from variable interest rate and reduced repayments if interest rates fall.
As home loans offerings get more and more competitive it is not uncommon for lenders to offer an enticing ‘honeymoon rate’. This is usually a set amount of time for example the first one or two years, when you can benefit from a lower rate of interest than the base variable rate offered. After the honeymoon period is over, the interest rate goes back to the base rate.
This can be beneficial when you’re first settling into your home and may face other household related expenses like painting the house or new appliances. It could be a great way to ease into your mortgage payments.
At Mortgage House, we’re no strangers to the homeowner’s journey. It’s a long (but rewarding) one.
But don’t worry, we can help with that.
If you’re thinking of buying a home, you can contact us for advice about the best options for you when it comes to your mortgage.