How to choose the best home loan…

For first-time buyers, navigating the world of home loans can feel daunting. With numerous lenders offering various mortgage products, it’s hard to know which one suits your needs.

A mortgage broker, like us at Broker Co, can guide you through the process, ensuring you select the right loan based on your unique financial circumstances and goals. Here’s an overview of the main types of home loans available.

Principal and Interest Mortgages

Home loans typically consist of two parts: the principal, which is the amount you borrow, and the interest, which is what you pay for borrowing the money.

A principal and interest loan means you’ll repay both the principal and the interest with each instalment. Alternatively, you could opt for an interest-only mortgage, though it’s worth noting that interest rates for these tend to be higher than for principal and interest loans.

Variable Rate Mortgages

With a variable rate home loan, the interest rate you pay may change depending on fluctuations in the cash rate set by the Reserve Bank of Australia (RBA) and other market factors. Many borrowers are drawn to variable loans due to the flexibility they offer.

For example, if the RBA reduces the cash rate, your lender might pass on that reduction to you, lowering your interest rate. Conversely, if the cash rate increases, your interest rate will likely follow suit.

Fixed Rate Mortgages

Opting for a fixed rate mortgage means your interest rate, and therefore your repayments, will remain unchanged for a fixed term, usually between one and five years.

This option appeals to those who value the certainty of knowing exactly what their repayments will be each week, fortnight, or month. Fixing your loan can be beneficial if interest rates are expected to rise, but keep in mind you won’t benefit if rates fall during your fixed term. Additionally, switching to a variable rate or refinancing could incur a fee.

Split Home Loans

A split home loan gives you a combination of both fixed and variable rates. This means part of your loan is at a variable rate, while the other portion is fixed.

This option allows you to enjoy the benefits of falling rates on the variable portion while protecting yourself against rising rates on the fixed portion.

Additional Considerations

• Basic vs. Standard Loans
  Basic home loans often come with fewer features than standard loans, making them more affordable. They typically come with a variable interest rate and fewer bells and whistles.
• Packaged Loans
  A packaged loan bundles your mortgage with other financial products, such as a credit card or current account. In exchange for an annual fee, you might receive a discount on your home loan or have fees on these products waived.
• Offset Accounts
  An offset account links a savings or current account to your mortgage, with the balance in the account reducing the interest charged on your loan. For instance, if you have $50,000 in an offset account and a mortgage balance of $500,000, you’ll only pay interest on $450,000.
• Redraw Facility
  A redraw facility lets you make extra repayments on your home loan, helping to reduce your interest. If you need access to the extra payments later, you can ‘redraw’ those funds.
• Line of Credit
  If you need access to funds for large expenses such as renovations or holidays, a line of credit could be an option. It works similarly to a credit card, secured against your property, and you’ll only pay interest on the funds you use.
• Low-Doc Loans
  Low-doc loans require less financial documentation than standard loans, making them popular among self-employed individuals or those facing unique borrowing challenges. However, they often come with higher interest rates and may have additional restrictions.

Ready to Take the Next Step?

As your trusted mortgage broker, we’re here to find the right home loan for your specific needs. Get in touch with us at Broker Co today, and we’ll guide you through your options and help you secure the ideal mortgage.