Comparing Home Loans

Positive Home Loans believes that, instead of just showing you a few of our favourite products, we’ll let you compare mortgages from over 30 lenders.

We’ll even go the extra mile to make sure you have all the information you need to make the best decision for you and your loved ones. A mortgage broker might even be able to combine some of these options so you get better returns on the features you’re looking for.

A home loan is about a lot more than just interest rates and fees, and your broker will make sure you have the flexibility you want during the repayment process: access to internet banking, an offset account, the ability to make extra payments or to pay the loan out early.

Types of Home Loans

1. Fixed rate (principal and interest)

With a fixed rate, your home loan repayments will be the same amount for the period of time you choose to fix the rate - this is usually between 1-5 years.The total length of your home loan is still 25-30 years. At the end of the fixed period, you can choose whether to continue the loan at variable interest rates or to fix the loan at the current market rate for a further period.

Why choose a fixed loan?

  • You know in advance exactly how much each payment will be
  • This means you can make a precise budget
  • You’re protected from unexpected rate rises

The flip side is if interest rates fall, you won’t benefit from a lower repayment. You’ll usually only be able to make a limited number of additional payments, and there’s a penalty for paying the loan out early.

2. Interest only

For the first part of the loan, you’ll just be paying interest - usually the first 1-5 years. Repayments will be a bit lower than with a principal and interest loan.

If you want to renovate or improve your property - particularly for an investment - this frees up the cash you’ll need, or allows you to focus on increasing your equity in your principal residence. But you’ve got to be prepared for the sudden increase in repayments at the end of the interest-only term. Your borrowing power will be a bit less than a full-term principal and interest loan because the lender assesses based upon your ability to make repayments once the interest-only term ends.

3. Low-doc loans

If you’re self-employed, you might not have the conventional proof of income documents, but you can still get a home loan approved. Using tax returns, BAS statements, bank account statements, and proof of ABN, your mortgage broker can put together an application for a loan amount you can realistically service.

You'll need to have held a GST-registered ABN for a period of 6 months to 2 years, depending on the lender. The documentation that you'll need includes the following:

  • A self-declaration of income
  • Accountant's certified letter to verify personal/business solvency and trade position
  • 12 months of BAS statements
  • 3 months of business statements

Low-doc loans tend to have higher interest rates, influenced by the lender’s risk evaluation. Interest rates may be 2-4% higher than a traditional loan - this will be determined by your individual assessment. Otherwise, the loan will have the features of a standard home loan.

4. Line of credit

This loan could be a good option if you’re renovating and you only want to borrow as much money as you’ll need. You only pay interest on the amount of money that you actually need. It’s best for the cautious, as the temptation to borrow more than you need can become expensive.

5. Split rate (principal and interest)

This loan allows you to allocate a portion of your loan amount to a variable interest rate, and to fix a portion of your loan.

This’ll give you some certainty for budgeting, and protection from interest rate rises. You can still make additional purchases on the variable portion of the loan.

Repayments still rise and fall with interest rates, but by a lesser amount than if you hadn’t fixed a part of the loan.

6. Variable principal and interest loans

A variable rate home loan means that the interest rate you pay on the loan will fluctuate as the rates set by the Reserve Bank of Australia change. A number of your repayments will change as the interest rate rises or falls, so you need to be prepared.

A variable rate home loan gives you more flexibility regarding early payment, the ability to make extra repayments, and a redraw facility.

7. Building and construction loans

The major difference between a standard home loan and a construction loan is that payments will coincide with the initial land purchase, and then each key stage of construction. You will only pay interest on the parts of the loan that have been paid out, or ‘drawn down’.

Before building commences you will need to pay a deposit to your builder, as well as a deposit for the land purchase. As work progresses you make payments to the builder per the contract.

What to look for when comparing home loans

When you are in the market for a mortgage, you need to consider more than just the interest rates. It's important to get a low rate, but you also want to consider how the features of the home loan will fit your current circumstances, as well as your plans for the future.

Some of the key things to consider are the features that affect the total cost of the home loan over its entire loan term. These include Lender's Mortgage Insurance, and knowing what your Loan to Value Ratio ('LVR') is.

If you're new to the mortgage process, you can find out more about exactly what a mortgage is and how it helps you reach the home ownership goal by reading more here.

Anytime you have a question, you can find most of the answers you need by exploring this site. But if you want to talk to a real person, our friendly mortgage brokers always have the time to answer your questions.

It's as easy a sending a quick email or giving us a call on 1300 366 287, and you're taking your home buying journey to the next step.


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