How many types of home loans are there?
Hundreds. The key is finding the right one for you.
If you don’t know a lot about the mortgage market you might decide to go with a basic home loan. But for many people this wouldn’t be the most appropriate option. Here we look at just some of the more common home loan & mortgage options:
- Basic home loan
- Honeymoon loan
- Standard variable rate loan
- Redraw facility
- 100% loan
Basic home loan
A basic home loan offers a low but variable interest rate and few or no regular fees. However, there is also limited flexibility. e.g. you may not be able to pay off extra if you get a windfall, or vary your repayments.
A honeymoon loan offers a very low interest rate for an introductory period – generally 12 months. Once the “honeymoon” is over, the interest rate reverts to the higher variable rate . You need to consider the cost of the loan over more than just the honeymoon period, and if any fees are incurred if you refinance after the honeymoon period.
Standard variable rate loan
A standard variable rate loan is a loan product that generally allows you to choose many “bells and whistles”. e.g. a redraw facility, an all-in-one account facility, linked accounts and credit cards etc. Consider the features you need carefully with your MFAA member.
A redraw facility lets you pay off more of your home loan but still allows access to those extra funds if you need to. The rate offered will generally be lower than the standard variable rate but there may be a minimum redraw amount (e.g. $2000). There will also typically be a fee for every time you redraw.
No deposit home loan or 100% home loan
A no deposit home loan or 100% home loan is where you borrow 100% of the purchase price of the property. While this sounds like you don’t need a deposit, most institutions will require you to have saved 3% of the purchase price. This amount is often then used to cover lender mortgage insurance. You also need to have saved for all the associated costs of buying a home
Which home loan is right for you?
These mortgage options are just the tip of the iceberg. With this vast choice, how do you know which loan is most appropriate for you? Contact Bevon Sinnott by emailing [email protected]
An MFAA Approved Credit Adviser is not your average mortgage broker.