If you are looking for the Best Home Loans Melbourne, you need to first consider your current financial situation and the types of loan features that are most compatible with meeting your immediate and future financial needs. There are a number of different types of home loans that you can choose from: Variable, Fixed, Split and Interest Only Home Loans.
Knowing the difference between these home loans will help you identify the most suitable type of loan for which you should apply. As a leading broker of the Best Home Loans Melbourne, Lending Specialists has provided a simple definition on these different types of home loans.
Here’s Lending Specialists | Best Home Loans Melbourne type of Home Loans:
Variable Home Loans
This is the most popular home loan in Australia where the interest rate fluctuates up or down depending on the cash rate set by the Reserve Bank of Australia. The regular repayments pay off some of the principal and the interest each contracted period.
Advantages
- If the interest rates fall your minimum repayments may decrease as well.
- Most Variable Home Loans allow you to make extra repayments without penalty.
- Many of these loans have an offset account associated with the loan, which has the potential of substantial interest savings when used correctly.
Disadvantages
- An increase in interest rates generally means an increase in your repayments too. If the repayments rise, this might affect your household budget.
- If you have a Basic Variable Home Loan you may not have access to extra repayments, or there may be a cost to access these funds. Many of these Basic Variable Rate Home Loans don’t come with a redraw facility or there is a cost to access these extra funds.
Fixed Home Loans
The interest rate is fixed for a certain period of time, generally between 1 and 5 years, but can be taken for extended periods in some circumstances. This means that the regular repayments will stay the same regardless of changes in the interest rate, providing a degree of financial certainty for the period.
Advantages
- Regular Repayments will not be affected by any changes in the interest rates during the fixed rate period. This is especially helpful if the interest rates are on the increase.
- Management of the household budget can be easier during the fixed period.
Disadvantages
- You won’t get the benefit of a fall in interest rates as your interest rate and repayments remain the same throughout the fixed rate period.
- There may be substantial penalties for exiting the fixed portion of the loan before the completion of the contracted term.
Split Rate Loans
One portion of the loan is fixed, while the other is variable. The proportion for each will be decided by the borrower and this can be a good option when you have concerns about the effect on your household budget in a rising interest rate market.
Advantages
- When the interest rates change only the variable portion will be affected, making budget management easier.
- If the interest rates decrease, the regular repayments for the variable portion of your loan may also go down.
- You can usually pay the variable part of the loan quicker without penalty.
Disadvantages
- If the interest rates rise, your regular repayments on the variable portion will rise too.
- There may be substantial penalties for exiting the fixed portion of the loan before the completion of the contracted term.
Interest-Only Loans
You only repay the interest on the amount borrowed. As you are not paying the principal, the monthly repayments are generally lower. At the end of the interest-only period you will begin paying both the principal and the interest for the remainder of the overall contracted loan term.
Advantages
- Lower regular repayments during the interest only period.
If the loan is not fixed, then you can generally access any additional payments through redraw at your convenience.
Disadvantages
- At the end of the interest only period, you will have the same amount to pay as when you started.
You may be faced with a sudden increase in the repayments at the end of the interest-only period as the repayments will be re-calculated to allow repayment of loan within the original overall contracted term.
For the Best Home Loans Melbourne, visit Lending Specialists now!
If you have any questions or would like to discuss further, please do not hesitate to contact Lending Specialist Melbourne on (03)8805-1800 or email barry@lendingspecialists.com.au
