The Different Types of Home Loans

When you plan on taking out a home loan, your bank, mortgage manager, or broker will likely offer you different types of loans. But because of the seemingly endless choices, it's essential for you to understand and determine which type of home loan is right for you. Here are the different types of home loans available in the market today:

  1. Basic Home Loans. If you are a first time home-buyer, this loan can provide you with low interest rates and as few bank fees as possible. However, this loan offers minimal features and may include additional charges should you need a feature that is not currently provided, such as if you plan to change loans or lenders or if you decide to pay off the loan sooner. This is also probably the type of loan with the lowest ongoing fee of half to one percent below the standard variable rate in the market.
  2. Standard Variable Rate Home Loans. This is probably one of the more attractive types of home loans in the market because it often includes a great set of features (examples: make additional payments without penalty, split loans, portable), reasonable interest rates and fees and has the most flexible payment scheme. This loan has a higher interest rate compared to a basic home loan, though.
  3. Fixed Rate Home Loans. If you don't want to make additional loan payments, getting a fixed rate home loan might be a good option. With this loan, you only need to pay a fixed interest rate for a set period of time, giving you the opportunity to stick to your budget. Once the fixed period is completed, you have the option to choose a different loan arrangement or plan. An advantage of this loan is that even if interest rates rise, the cost of repayments will remain the same. However, the downside is that there are also fixed and limited features that you can use.
  4. Interest Only Home Loans. This loan is more suitable for investors who are looking for a type of loan that has a lower repayment fee compared to principal and interest loans. However, home buyers can also benefit from this type of loan especially if you are refinancing an existing loan or if you need resources to pay for renovating your home. The repayment covered by this loan is the interest and the principal must be paid in full at the end of the loan term.
  5. Line of Credit Home Loans. This loan works just like a credit card, where you can withdraw money or funds within your set limit and pay for it in full or on a monthly scheme, depending on your loan arrangement.
  6. Lo Doc Home Loans. Also called a lo-document loan, this is the best option for people who are self-employed. With either a fixed or variable interest rates, people who have no financial statements or proof of income can avail of this loan.

Choosing the right home loan for you might be a challenging task, but you will be rewarded in the end with a loan that fits your needs and budget perfectly. What it means is that you won't have to worry so much on making your repayments since you're confident that you could pay it off every time. Here at Rate Detective, our qualified advisors are ready to help you look for a new home loan or help you lower your repayment fees. We will also provide you with rate comparisons of Australia's top lenders, giving you the power of choice you can't find else where. Contact us today!

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Published on April 4-rd, 2013 in Home Loans
Damon Rasheed is the CEO of Rate Detective, an Australian financial service comparison sites specialising in Life Insurance, Income Protection Insurance and home loans. Damon holds a Master's Degree in Economics from the University of Melbourne and has been involved in many start-up internet businesses.
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Any information or advice contained on this website is general in nature and has been prepared without taking into account your objectives, financial situation or needs.