Different Types of Mortgage Options

By 7 July 2017Education
mortgage options

There are different types of home loan packages available in the market, which will enable you to make a well informed and timely decision. Here are some of the options available to you.

Fixed Rate Mortgage Option

With a fixed rate home loan, you need to pay a fixed interest rate from the beginning. The repayment terms vary from a period of 6 months to 15 years. Normally, it allows you to lock the repayments in between the first five years. The interest rate is fixed for a defined time period, i.e., 1, 3, or 5 years, and at the end of that period, the lender converts it into a standard variable rate. This enables you to plan your budget with accurate numbers and also provides protection if interest rates increase in the future.

Variable Rate Mortgage

Variable rates are a very common option when it comes to rates. Every bank or lender offers this loan to the buyer. In this type of loan, the interest rate is low in the beginning, but eventually, it starts changing in accordance with the market index. This means that variable loans fluctuate with the up and down movement in the market. This rate offers flexibility to a borrower, because he or she can make additional repayments if they have extra cash. It also allows you to redraw the cash that you paid toward repayment too.

Principal and Interest Mortgage

This is a basic type of loan. In this loan, you have to pay back the principal amount along with interest repayment. The mechanism is quite straight forward and simple to understand.

Interest-only Mortgage

In an interest-only home loan, your liability is limited to the interest portion of the loan. A borrower is liable to only pay back the interest, which is constant throughout the payment term. However, you eventually have to pay back the principal part in the end. The benefit of this loan is that it allows you to defer a substantial portion of a loan repayment until you are capable of earning a reasonable income.

Split Home Loan (Fixed and Variable)

The benefit of availing this loan facility is that you can get part of the loan at a fixed rate and the other half at a variable rate. If the interest rate falls, the cost of variable rate portion will also go down. All in all, this loan type allows you to diversify away your risk.

Land Loan

A land loan is suitable for those who do not wish to build a house immediately. It allows you to buy a piece of land without any pressure to construct a house on it. It is typically a long term loan (30 years) with a variable interest rate.

Construction Loan

If you wish to renovate your house or purchase land, you can get a construction loan. It is a short term home loan, for example, you can get it for a period of 12 months. This allows you enough time to build a house.

There are two types of construction loans: construction-to-permanent loan and stand-alone construction loan. A lender converts the first loan into a permanent mortgage once you move in to your house. For the second loan type, you have to take another home loan to pay back the construction loan when you plan to move in your home.

Non-PAYG Loans

Even if you are self-employed, you can still avail a home loan. The best way is to consult your mortgage broker as he or she will advise you on what you should or should not do. Gather all the necessary documents that show your credibility, including bank statements and business activity statement (BAS). These documents verify your self-certified income. It will strengthen your credit profile and improve your chances of getting a loan. With this option, you can borrow up to 80% of the property price.

Equity Release

With an equity release, a borrower can convert part of his residential property into cash. He or she can also switch it into an income stream too.

Chat to Hunter Galloway today about the best finance option for you on 1300 088 065 or email Nathan at Nathan.Vecchio@HunterGalloway.com.au