How do you choose the right mortgage? First, you need to understand the different options available to you. We’ve compiled a list of some of the most common types of home loans, as well as information on the potential pros and cons of each one. Read on to learn more, or reach out to our team to discuss the specifics of your situation.
Fixed Rate Mortgages
A fixed-rate mortgage locks in the interest at the current rate. You’ll pay this rate across the full term of the loan, and it will be applied to the full outstanding balance. You might like to explore this option during periods of low interest, as you could protect yourself against potential rises. Just bear in mind that this loan might come with higher fees and charges and that you won’t benefit from any potential interest rate falls in the future.
Variable Rate Mortgages
A variable rate is subject to changes to the Reserve Bank of Australia’s target rate. Lenders can increase interest rates according to this target rate, so the regular repayments on a variable-rate mortgage will likely fluctuate over time. You’ll be able to take advantage of reduced rates if the RBA lowers their guidelines, and you may also be able to secure this mortgage with lower fees and charges. However, if the RBA raises interest rates, you’ll pay more.
Interest Only Mortgages
An interest-only mortgage is a loan with an interest-only period attached to it. During this period, you will not pay anything towards the principal of the loan and will instead make payments that cover the interest. At the end of the interest-only period, your payments will increase because you will also start paying off the principal. This could be a good way to recover from the initial costs of purchasing the property, enjoying reduced repayments for a set period. Of course, you won’t pay down any of the principal in that time, which may extend the full term of your loan. Also, your costs will increase later on.
Split Rate Loans
Split-rate loans incorporate elements of both fixed-rate and variable-rate mortgages. With this type of loan, you might enjoy a fixed interest rate on one portion of the full loan amount and then pay a variable rate on the rest. You might choose this option if you want to limit your exposure to interest rate changes while still benefiting from potential reductions in the future, but remember that interest rates might increase too.
Low Doc Loans
A low-doc loan is an option for first-time home buyers who do not meet the criteria for a conventional home loan. You’ll still be able to access a mortgage for your property, but the barrier to entry will be reduced. This is an attractive option for many individuals who may otherwise struggle to purchase a property, but you may need to put down a larger deposit to qualify for this loan, and the fees and charges may be higher. There will also be a stricter loan-to-value ratio (LVR) applied to this loan simply because you represent a greater risk to the lender.
Construction Loans
This is a specific type of loan for those who want to build a home on a plot of land. A construction loan might be suitable for those who need funding to cover the ongoing construction cost but may not be offered by all mortgage providers. Additional fees and charges may also be attached to the loan, and you may need to seek specialist advice before considering this option.
Bridging Loan
If you already have a property and want to buy a new home before you sell the existing one, a bridging loan can help. This is not a mortgage, as it is not designed to cover the full cost of the property. Instead, it is a short-term loan that can ease the strain of purchasing a new property before the old one is sold. Bear in mind that you will still need to get a home loan on the new property once the transaction is confirmed.
How to Choose a Mortgage: Find the Options You Need with Sydney Brokers
Here at Sydney Brokers, we work with some of the leading home loan and mortgage providers in the region, helping find borrowing options that suit your circumstances. Whether you are a first home buyer or if you are already on the property ladder, reach out and tell us what you need.