The Many Faces of Home Loans in Australia

There is much more to home or investment property loans than just the interest rate. Fixed rate home loans, variable rate home loans, lines of credit and non-conforming loans – which is right for you? The experienced team of mortgage brokers at Cosimfree Home Loans in Geelong helps you make the right choice.

Fixed Rate Home Loans

We sometimes call these “peace-of-mind loans”. A fixed rate loan means that the interest rate is locked in for a period of time decided by you. Fixed rate loans can usually be locked in for one to 10 years, and sometimes longer. With a fixed rate loan you can feel secure in knowing your repayments during the fixed rate period because the interest rate is “fixed”. But beware, early repayment penalties do apply!

Fixed Rate Advantages
  1. You need not worry about interest rate rises whilst your loan is in a fixed rate period.
  2. Budgeting is easier as your home loan cost is secure.
Fixed Rate Disadvantages
  1. If interest rates fall you may end up paying more interest than you needed to.
  2. Most lenders restrict extra repayments on fixed rate loans.
  3. If you pay out the loan during the fixed rate period you might expect early repayment penalties.
  4. Most lenders don’t allow mortgage reduction strategies such as an off-set account to be used with a fixed rate home loan.

Variable Rate Home Loans

We sometimes call these loans “flexibility loans”. They don’t have the security of a fixed rate loan when it comes to interest rate rises but they usually have more features and allow for greater flexibility. Variable rate loans mean the rate can change… up or down… during the loan term. Variable rate loans can be discounted by the lender based on how much you borrow, your equity, or how well we negotiate the best deal for you. Some variable rate home loans have a low rate during a honeymoon period and “no-frills” loans can have a lower variable rate for the life of the loan but then lack the “bells and whistles”.

Variable Rate Advantages
  1. Extra payments are usually allowed.
  2. Off-set facilities can be applied with most lenders.
  3. Flexibility with repayments.
  4. Redraw is commonly available.
  5. Extra repayments pay the loan off sooner and save you in interest costs.
  6. There are no early repayment penalties.
Variable Rate Disadvantages
  1. If interest rates rise so does your rate and so will your repayments.
  2. A honeymoon rate does end and then the interest rate goes up!

Line of Credit

These loans can be great in concept but do not suit everyone. A line of credit is an approved loan up to an agreed limit. You can pay as much off the loan at any time as you wish and you can access the difference between what you owe and the agreed limit at call. You might have your entire income directed to your line of credit every payday and this will reduce the interest you pay. You can then draw back out of the line of credit to cover your living costs. With proper advice and strict discipline from you, you can use a line of credit to reduce your debt, but do seek a mortgage reduction specialist to help you manage your line of credit effectively.

Line of Credit Advantages
  1. You can have funds available to you as you require but you only pay interest on the amount of the loan you have used.
  2. Extra repayments are allowed at any time.
  3. By depositing your salary and any savings into this loan you reduce the interest that is charged daily.
  4. Ideal for investors.
  5. A mortgage reduction programme is important in managing this type of loan. A Cosimfree Home Loan consultant can greatly assist here.
Line of Credit Disadvantages
  1. It can be too easy to put your hands on more debt.
  2. You need discipline in making regular payments as the lender will be happy if you are only paying the interest.
  3. They often have higher interest rates and higher fees attached.
  4. Some people use a debt reduction programme successfully only to celebrate their success by dipping into their line of credit again…. Ouch!

Non-Conforming Loans

Non-conforming loans are for people who have difficulty gaining a traditional loan at a normal bank due to poor credit history or employment instability. Non-conforming lenders often show more flexibility in giving clients a chance to establish themselves. Some of our most grateful clients have been people who were just about to lose their home but who have been saved with our expertise in placing them with a non-conforming lender. They can be more expensive loans but they need not be forever and they at least provide an option for some when the banks say “No”.

Non-Conforming Loan Advantages
  1. Flexibility shown by the lender in assessing your worthiness.
  2. Provides a chance to re-establish your credit rating.
  3. Likely to be preferable to losing your home or even paying rent.
Non-Conforming Loan Disadvantages
  1. Can be more expensive to set up and the interest rate is often higher.
  2. Early repayment fees can also be significant.

Home Loan Tip

Be careful when looking for the right home loan. Don’t just look for the lowest interest rate. Use a knowledgeable and professional mortgage broker to consider other things as well such as set up fees, valuation costs, lender’s mortgage insurance costs, early repayment fees, monthly fees, etc. We can simplify the loan process for you – please contact us to find out more.