Have you found your dream home, and now need a home loan to pay for it? Or perhaps you’re checking out what loans are available and what you can afford before you start to look for a property? Maybe you want to refinance your existing home with a better deal. Whatever stage you’re at, we have lots of loans from a large number of lenders for you to compare here at Finty.
By Yvonne Taylor | Updated 9th April 2020
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Also commonly known as a mortgage, a home loan is an amount of money borrowed from a bank or other financial institution for the purpose of buying an existing home, or renovating it, or building a new home, or refinancing an existing home loan. Where a property is being purchased, built or refinanced, the lender will usually take a charge over the property as security for the loan. This means that if you are not able to meet your loan repayment and end up in serious default, the lender has the option of repossessing the property and selling it to settle the debt.
It depends on a number of factors, including:
A typical repayment term would be 25 or 30 years.
The lender may have a set repayment term, such as 25 years, or may offer a choice of repayment terms. The shorter the repayment term, the bigger your monthly repayments will be. As a general rule you should opt for the shortest repayment term you can afford, since this means that you will pay less interest in total over the life of the loan. But you should be realistic about what you can afford and give yourself some breathing space in case of tough times (such as temporary unemployment), especially if you have opted for a variable interest rate (because interest rates may increase).
Monthly repayments are the norm, but you can sometimes opt for more frequent or less frequent repayments.
Most home loan repayments include a portion of the loan principal as well as interest charges. In the early years of a loan term, interest charges will account for the bulk of the repayment. But the ratio of principal to interest changes as the loan principal is gradually reduced, so that in the final years of the loan term, the regular repayments are mostly repayments of the loan principal.
Interest-only loans are an exception. In this case, the repayments only cover the interest charges and the loan principal does not reduce, either during the entire loan term or for an agreed number of interest-only years.
Interest rates can be:
A fixed interest rate loan charges interest at the same rate for an agreed number of years. It’s easier to budget for a fixed interest rate, because you know exactly how much your monthly repayments will be, and the amount will not change. If interest rates go up, your home loan interest rate will not. On the other hand, if interest rates go down, you will miss out on the benefit because your home loan rate will not go down.
Variable interest rates can go up or down, more or less in line with changes in the Reserve Bank’s official cash rate. Budgeting is more difficult, because there’s no certainty about the amount of your repayments.
A split, or partially-fixed interest rate could be the answer if you are having difficulty deciding between going for a fixed or a variable rate.
The advertised interest rate will usually include two numbers — the ‘interest rate’ and the ‘comparison interest rate’. The ‘interest rate’ is used to calculate the interest charges that will be applied to the amount of your loan principal. The ‘comparison interest rate’ has factored in the cost of all the lender’s fees, such as any application fee, loan establishment fee, monthly service fee and loan discharge fee, and expressed it in terms of what the interest rate would look like if these costs were included in it. It allows you to make a true comparison of the costs of competing loan offers.
Yes. Since the term of a home loan is so long (25 or 30 years) even a small difference in the interest rate can have a big impact on the amount you will repay. It may not look like a big difference when you compare your likely monthly repayments, but multiply that difference by 300 (25 x 12) or 360 (30 x 12) and you will understand the effect — a possible saving of thousands of dollars.
Most people are looking for the lowest possible interest rate, but there are other factors to take into account. Depending on how cautious or risk-averse the lender is, and also depending on the borrower’s credit score and credit history, it may not always be possible to secure a loan at the lowest advertised interest rate. There may also need to be a trade-off between the interest rate and the amount able to be borrowed.
You also need to look beyond the primary advertised interest rate and check the comparison interest rate, to get a true loan cost including the lender’s fees and charges.
Loans may also have differing features, such as a redraw facility (the ability to withdraw some pf the repayments you have already made if you are ahead with your repayments), a mortgage offset account (a bank transaction account linked to your loan to offset against your loan balance, reducing the interest charges) and the ability to make extra repayments in order to reduce the interest charges and/or pay off the loan earlier.
A further factor to consider is the level of service you are going to get from the lender. Is the lender a household name? Do they make repayments easy, via online banking or a phone app? Do they have a reputation for good customer service, in case you need to query something or make an adjustment to your loan or repayments?
At Finty we want to help you make informed financial decisions. We do this by providing a free comparison service as well as product reviews from our editorial staff.
Some of the products and services listed on our website are from partners who compensate us. This may influence which products we compare and the pages they are listed on. Partners have no influence over our editorial staff.
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