Selecting the right type of loan for your property goals

By the resi financial blog team, 29 November 2013

Selecting the right type of loan for your property goals

When you're looking into purchasing property - regardless of whether it's for you to live in or as an investment opportunity - the most essential part of of securing real estate is to find the right type of home loan for your goals.

Taking out a home loan from a lender is the easiest way for the majority of people to get their foot on the property ladder. Otherwise, it would be required for individuals to save up the entire value of a property before purchasing, which isn't ideal for everyone.

However, there isn't just a one-size-fits-all model for home loans. Chatting with a lender will provide you with a wide range of different loan types and facilities that can be added and utilised to make your home loan experience a unique one.

There are two common types of home loan that could be potential options for you to investigate, each with it's own set of pros and cons.

Fixed Rate Home Loan

One of the more common home loan types in Australia, a fixed rate loan takes advantage of the economic climate at the time of application and secures the borrower a fixed interest rate for a period of time.

Regardless of what happens in the economy, you can rest assured that your repayment amounts will remain the same each and every week over this defined period. This makes them perfect for home buyers looking for stability and for those living on a budget.

Due to this security, these loans often have fewer add-on features that can be applied to other loans.

While there is the chance of missing out on lower interest rates, coupled with a less flexibility, overall a fixed rate home loan can be the perfect option for first home buyers.

Variable Rate Home Loans

On the other end of the spectrum are mortgages known as variable rate home loans. These are less stable as payments can fluctuate, but offer the chance of making great savings in the long run on your home loan repayments.

These work by being based on the movements of the economy, with any fluctuations affecting the interest rates tied to/associated with these loans.

What this means is, during times of great economic activity, the interest charged on your repayments has the potential to be extremely low - which could lead to huge savings over the lifetime of your loan.

However, the opposite is also true. If the market begins to change, your interest rates are at these whims. Therefore, it pays to be extra vigilant of the market and its movements if you're considering a variable loan.

These mortgages also tend to be more flexible and have a wider range of features that can be added in order to help make your loan work for you in the long term.

Categories: Home Loans, Personal Finance