Home Loans

How it works: A fixed home loan rate is a type of mortgage where the interest rate remains constant and unchanging for a predetermined period, typically ranging from one to five years. During this fixed period, your mortgage repayments remain consistent, regardless of any fluctuations in the broader market interest rates.

Advantages: Predictable Repayments – A fixed rate loan’s most significant advantage is its predictability. Your repayments remain steady, making budgeting and financial planning more straightforward.

Protection from Rate Increases – If market interest rates rise, your fixed rate remains unaffected, shielding you from potential payment hikes and offering peace of mind.

Stability in Rising Markets – Fixed rates can be advantageous during periods of expected interest rate increases, ensuring you lock in a lower rate for the fixed term.

Considerations: Limited Flexibility – Fixed rate loans typically come with restrictions on making extra repayments or accessing redraw facilities. This lack of flexibility can be limiting if your financial circumstances change.

Missed Savings in Falling Markets – If market rates decrease during your fixed term, you won’t benefit from lower repayments, potentially missing out on savings.

Break Costs – If you choose to exit your fixed rate loan before the fixed term ends, you may incur break costs, which can be substantial.

How it Works: A variable rate home loan is a type of mortgage where the interest rate can fluctuate over time in response to changes in the market. The rate is typically linked to a benchmark, such as the Reserve Bank of Australia’s official cash rate or the lender’s internal funding costs. This means that your repayments can vary, either increasing or decreasing, depending on the movement of the chosen benchmark.

Advantage: Potential for lower rates – When market interest rates drop, your variable rate could follow suit, resulting in lower mortgage repayments and potential cost savings.

Flexibility – Variable rate loans often offer more flexibility in terms of additional repayments and redraw facilities. This can help you pay off your loan faster or access extra funds if needed.

Early repayment options – Variable rate loans usually allow you to pay off your loan early without incurring significant penalties, giving you the freedom to clear your debt sooner.

Consideration:  Rate Volatility – The most significant drawback of variable rate loans is their inherent unpredictability. If market rates rise, your loan’s interest rate and repayments could increase, impacting your budget.

Financial Uncertainty – Fluctuating repayments can make it harder to plan your finances, potentially causing stress if rates rise unexpectedly.

Risk of Overcommitment – With lower initial rates, there’s a risk of borrowers overcommitting to higher loan amounts than they can comfortably manage if rates rise in the future.

How it works: Construction loans are short-term loans used to finance t he construction of a residential home, or other real estate project. Due to their high-risk, interest rates for construction loans are usually higher than traditional mortgage loans. 

Advantages: The loan amount is reflected off the construction price/ future property value, rather the current value. And only requires loan repayments during the construction period (short-term loan)

Considerations: Often have increased interest rates compared to mortgage loans. 

How it works: Refinancing is the process of replacing an existing loan with a new one. With mortgage refinancing, homeowners can borrow funds at a more favorable interest rate, pay back the funds over a different loan term, or tap into their home equity. 

Advantages: May have access to more favourable interest rates, so you can save more money and time off the life of your mortgage. 

Considerations: Be mindful of potential fees, longer loan terms, and higher interest rates. 

How it works: Commonly, people view debt as a negative issue to be avoided or eliminated as soon as possible. However, this isn’t always the case. Some types of debt can actually help you enhance your financial situation. For instance, a mortgage allows you to purchase a valuable asset (home) that could appreciate in value over time.

Advantages: Could potentially allow you to profit – predictable cash flow and great return, alongside tax advantages. 

Considerations: Unless owner-occupied, maintenance and management could become an issue. The rental application process can become quite tedious. And risks of property value dropping.

How it works: Bridge loans are short-term financing options that can offer a source of funding for people or businesses until they secure permanent financing or pay off an existing debt obligation. These loans are often used in real estate transactions, lasting on average from 6 months up to 1 year. One popular use for bridge loans is to finance the purchase of a new home before selling an existing residence.

Advantages: Generally must faster than traditional mortgage products, and flexibility on repayment terms. 

Considerations: More included fees compared to traditional mortgage products, higher risk of loss of asset (home), if behind on repayments, and the longer the loan term, the higher the interest rate.