There are many options to consider when you’ve decided you want a mortgage or to refinance an existing one. We’ve looked at the most common mortgage options below and have perfected the art of combining mortgage structures.
So if you have any questions, get in touch with us.
Fixed rate loan
As this term suggests, your loan’s interest rate is fixed for a period of your choosing between 6 months and 5 years.
You’d choose a fixed rate mortgage to know exactly what you’re paying for the term of the loan. This is a good option too if you think interest rates will rise because a fixed term loan will lock your rate in for your chosen period. But if interest rates drop you’ll end up paying more than you needed to.
We can advise you on your best options including Capped rate mortgages which sets an interest rate that your mortgage won’t go over but can drop lower if rates drop below your capped interest rate.
Also referred to as a variable rate loan, your mortgage’s interest rate rises or falls based on market shifts that are linked to the Official Cash Rate. This is a good mortgage option if you want more repayment options such as paying off bigger sums without penalties, or you think the market is about to move in a certain direction and you want to fix your mortgage at a later date. Due to market uncertainties, floating rates are often higher than fixed rates, so this kind of mortgage approach is used when you need to be strategic in the short term.
You also have the option of splitting your mortgage between a fixed and floating rate. This way you can make additional repayments on the floating mortgage portion without being charged extra on the fixed rate side. Choosing this option comes down to personal preferences.
With a table loan you choose a term for up to 30 years. This is the mortgage that most people sign up for. A lot of your interest is paid off early in the loan term with payments thereafter reducing your principal, which is what you originally borrowed pre-interest charges.
Table loans can be fixed or floating and most lender fees are negotiable. This type of mortgage is good when you are buying a forever home and will know exactly when your mortgage will be paid off. Unless you choose a floating rate, you pretty much always know your repayment amounts.
Revolving Credit loan
If you are smart with money and want to pay off your mortgage faster, a revolving credit loan is a great option. It essentially operates like a giant overdraft where all of your funds (income etc.) are added to and spent from the same service account. This is a great way to minimize your mortgage’s overall total which means you can pay less interest. You can make lump sum payments or draw out funds up to the limit of your facility. A revolving credit loan is a great option for people (like freelancers and contractors) who earn irregular amounts.
Offset mortgages are similar in setup to revolving credit loans. You still pay interest on the loan total, however, you can link your savings accounts and any other accounts holding funds, to your loan account, to reduce your overall interest payable. So if your mortgage was $500,000 and you had $100,000 in savings, you would only pay interest on $400,000. You can even get other people in your inner-circle to link their accounts so you pay even less interest. This is a great option if you are cash rich but bear in mind that the linked accounts won’t earn interest after they are linked. This shouldn’t be a problem though because the interest on debt is higher than the interest you’d receive from your savings. So it’s a win-win.
Interest only loan
An interest-only loan is often suited to people who are purchasing a property with the view to renovating and then flicking it. You only pay the mortgage’s interest so you have spare funds to use elsewhere. Even if you plan on keeping your property beyond the initial interest-only period, an interest-only mortgage can kickstart your plans before you consider a mortgage that also repays the principal.
A reducing loan sees you repaying the same amount of principal for each payment but a reduced amount of interest over time. Initially your payments are high but these reduce over time. As you are paying a consistent amount off your principal you will pay less interest with this kind of mortgage. It’s often more beneficial to choose a table loan with consistently higher principal payments for the loan’s term over a reducing loan, but we can advise you on the best option for your circumstances.