Which Mortgage Loan Is Right For Me?

Most mortgage lenders offer a number of standard types of home loans: the standard variable home loan, an interest only loan, a honeymoon loan, a fixed-interest loan and a line of credit. What you require from your mortgage will depend on what kind of borrower you are:

Whether you are refinancing as an investor or as an owner occupier. While each borrower is attracted to low interest rates, both also have specific requirements.
Home buyers generally want to pay off their loan quickly and can save money by switching to a basic or no-frills home loan.

Example: By shaving half a percent off your mortgage, reducing from 8% to 7.50%, means that on a mortgage of $400,000, you save $111 per month. You might decide to add that $111 each month towards your principal loan amount, meaning you pay your mortgage off sooner.

Investors refinancing may look for an interest only option to assist with their cashflow.

If your mortgage contract is more than five years old, you may not be benefiting from more recent innovations. These can include:

Little or no monthly or annual fees:

Saving you money and ensuring that your mortgage repayments are working toward paying off your home loan - not Mortgage Lender's fees.

Free Internet Transactions:
Giving you 24/7 access to your home loan account and saving you from paying unnecessary fees.
Bells and whistles:
Some loans come with offset accounts, line of credit, interest only repayments and additional repayments option. Ask yourself if you need these features as often these packages attract a higher interest rate than the basic home loan

HANDY HINT: Do your sums to make sure the lower interest rate on offer will be an ongoing benefit and is not just a honeymoon rate which reverts to higher than usual rate after a set period.

Different Loans for Different Needs

The types of loans on offer include:

Honeymoon Rate Home Loans
This loan offers a discount introductory mortgage rate which after a time reverts to a variable home loan rate. Some honeymoon loans have hidden costs such as large exit fees if you decide to refinance in the first few years of the loan.

HANDY HINT: A honeymoon rate will often last only 6 or 12 months before reverting to a standard variable rate. This "reverting" rate can often be higher than market rates, meaning you pay more in the long run.

The Basic Variable Home Loan
These mortgages are stripped of many of the features that come with standard variable loans, such as offset accounts or redraw facilities (a redraw facility allows you to draw down on additional repayments made on your loan at any time). Basic Variable Home Loans have lower interest rates - often by about half a per cent - than Standard Variable Home Loans because they don't have these features.

HANDY HINT: With a no-frills loan, you will need to check that there are no penalties if you want to make extra repayments.

Fixed-Interest Home Loan
These loans offer an interest rate that doesn't alter over a fixed term, usually from one to five years, regardless of any variations in the market rates. If interest rates rise during this period, you will enjoy lower rates. But if they fall, you will be left paying higher rates. As the interest rate is fixed, you have some certainty about how much your mortgage repayments will be.
A fixed-rate home loan may not offer the same level of flexibility and extra features as a variable home loan. For example, you may be limited in making extra repayments or redrawing during the fixed term.

HANDY HINT: After the fixed term finishes, the loan will usually revert to a standard variable rate. There may be extra costs should you wish to pay out the fixed interest home loan or redraw money out of the loan before the fixed-rate period expires.

Split-Rate Home Loan
If you are unsure about which way the interest rate will go, you can take an "each-way bet" by choosing to split your loan. This means you fix a portion and keep the rest variable.
Line of Credit
This loan, often called a "revolving line of credit", allows you to borrow up to a specified amount, and once you have paid some or all of it back, you can redraw it again up to that limit without incurring redraw fees.
Redraw Facility
A redraw facility on your home loan lets you make extra payments then access these funds when necessary.

Different Repayment Options for Different Needs

There are two standard repayment options on home loans:

Interest Only
These mortgage loans only repay the interest accrued on the home loan. The principal remains the same until the end of the agreed term, when the loan usually converts to Principal and Interest repayments.
Principal and Interest
This is a repayment option where both the amount borrowed and the interest accrued are repaid over the agreed term