Which type of home loan is best?

Our latest newsletter goes through all your options when it comes to your home loan...

With most types of home loans, you can choose either a fixed or a floating (or variable) interest rate. Revolving credit home loans and offsetting home loans have a floating interest rate.

Fixed interest rate – A fixed interest rate will not change during the period (term) of the fixed rate that you choose. At the end of your fixed interest rate term, you can either choose a new fixed rate from the rates available at the time, move to a floating rate or restructure your lending to adjust to your new needs.

• Fixed rates may be lower than floating rates
• You will have certainty of knowing exactly how much your repayments will be during the fixed term, making budgeting easier.
• You might have to pay a break fee if you want to make extra repayments or pay off your loan fast than initially discussed at the start of the fixed interest rate term.

Floating interest rate – A floating interest rate may go up and down as interest rates in the wider market change. You can change to a fixed interest rate at any time, although some types of loans are only available with a floating interest rate.

• You have the flexibility to make lump sum payments of any size at any time without penalty.
• If interest rates go down, you can potentially pay off your loan faster by keeping your repayments at the same level.
• As the rate is floating it may go higher than fixed-term rates
• If the interest rate goes up, so will your repayments which could put a squeeze on your budget.

Revolving Credit – A revolving credit facility provides your home loan and everyday banking all in one account on a floating rate. When your salary is paid into your account it reduces what you owe on your loan – which means you pay less interest. Revolving home loans are best suited to people who are disciplined in their approach to money.

Offset Home Loan – An offset home loan gives you the ability to use the balance of your eligible transaction and savings accounts to offset against your floating home loan and only pay interest on the difference. This could save you thousands on your interest repayments and cut the years of your home loan. Not all banks offer an offset loan which means this will be important to discuss with your adviser when firming up your needs and requirements for your new home loan. An offset home loan is for you if:

• You want to reduce the amount of interest you pay
• You want to reduce the length of your loan
• You can save as well as pay off your home loan
• You’d like to keep your home loan and savings in separate accounts
• Your comfortable with a floating rate knowing that interest rates could change.

If this has got you thinking about how you could restructure your loan or prepare for a future loan, feel free to get in touch today and we can create a tailored plan best suited to your situation.

I look forward to hearing from you.

Fiona