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Residential Lending

Overview of Residential Home Loans in Australia

When choosing a home loan in Australia, it’s important to understand the different types available and how they fit your financial situation. Here’s a simple guide to the main options:

Variable Rate Loan

  • The interest rate fluctuates with the market.

  • Pros: Flexible—allows extra repayments, which can reduce your loan term.

  • Cons: Rates can rise, increasing your repayments.

Fixed Rate Loan

  • The interest rate remains constant for a set period (usually 1-5 years).

  • Pros: Stability—your repayments stay the same, which is beneficial if rates rise.

  • Cons: Less flexibility, often with restrictions on extra repayments.

Split Loan

  • A combination of fixed and variable rates.

  • Pros: Offers the benefits of both fixed and variable loans.

  • Cons: Can be more complex to manage.

Interest-Only Loan

  • You pay only the interest for a limited time (1-5 years), after which you start paying off the principal.

  • Pros: Lower repayments initially, helpful for short-term cash flow.

  • Cons: Higher repayments later when principal payments kick in.

Low-Deposit Loan

  • You can borrow more than 80% of the property’s value, but you’ll likely need Lenders Mortgage Insurance (LMI).

  • Pros: Allows you to enter the market with a smaller deposit.

  • Cons: LMI adds to costs, and higher loan amounts mean paying more interest over time.

Offset Account Loan

  • Linked to a savings account that reduces the interest charged on your loan.

  • Pros: Potential to save on interest while maintaining access to your funds.

  • Cons: Often comes with higher fees.

Key Loan Features to Consider

  • Extra Repayments: Some loans let you make extra repayments without penalties, helping you pay off the loan faster.

  • Redraw Facility: Access any extra payments you’ve made, providing flexibility when you need it.

  • Loan Portability: The ability to transfer your loan to a new property without refinancing.

Each loan type has its advantages and drawbacks, so it’s wise to consult with a mortgage broker to determine the best fit for your situation.

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