Variable Rate Home Loans
Most banks offer the honeymoon loan facility. You get a reduced
introductory interest rate for the first few years. After that time, the interest rate reverts to the standard variable rate or you can
change the loan into a different type of loan (at a cost). Most banks charge an early termination fee between the first and fifth years of such a loan.
Basic Loans
One of the most popular loans, the No-Frills Loan has the
lowest running costs - and less extras - so you
pay a lower interest rate. Before you choose this loan ensure you understand the cost of extras (such as fee free credit cards and accounts etc) by comparing the costs of obtaining them separately. This loan requires regular repayments and usually allows for extra repayments, however keep in mind that money in your savings account (with the same institution) will not reduce you home loan interest charges. Some key features of this loan are:
- Interest rate is always lower than traditional loans,
- Interest rate is variable (it is vulnerable to interest rate fluctuations),
- There are no extras; all other accounts, credit cards, etc must be obtained separately.
Fixed Rate and Split Home Loans
Fixed Rate home loans give you interest at a set amount allowing for consistent repayments over a specified period of time. This makes budgeting easier as your repayments are always the same. This
protects you from interest rate rises, but disadvantages you if they become lower than you are paying. These loans apply penalties for extra repayments or if your loan is payed off before the decided date.Often a safer bet is a
split loan, where part of your loan is at a fixed rate, and the other part is variable. This allows you safety against rate rises for the fixed part of the loan, but allows you to benefit when rates are reduced on the variable part of your loan. You are able to make extra repayments on the variable part of your loan without penalties, although they will still apply to the fixed part of you loan. The split option gives you the more flexible features of a variable loan, yet provides the safety of a fixed loan.
