Mortgage repayment is a term that refers to your payment to the lender for the money that you owe. As with the other aspects of mortgage, repayments come in many forms, depending on the lender. Being familiar with some of the most common form of mortgage repayments would help you choose the best arrangement for you. We will fill you in with more details in the following paragraphs, so read on.
Here's what you need to know:
When you get a mortgage, the lender adds interest on top of the principal. In most cases, your lender will offer you a principal and interest loan. What it means is that you will make repayments on both the principal and interest. While this allows you to pay off your home loan sooner, it can be quite heavy on your finances, especially at the beginning. Thus, there are lenders who offer interest-only repayments. In this arrangement, you will pay only the interest for a specified period of time. Once that period is over, it is only the time when you'll start paying the principal. An interest-only arrangement could lower your repayments significantly, although you will pay more on interest in the long term.
Since you receive your salary on a monthly basis, it makes a lot of sense to make your repayments the same way. However, there are also other options available that your lender might provide: fortnightly and weekly payments. The advantage of making more frequent payments than the monthly option is that it enables you to pay off your loan sooner.
Called a redraw facility, this is a feature that some lenders offer that allows you to make extra repayments, which you can withdraw if necessary. While this is a great feature to have, the money you may redraw is often limited to a certain amount. If you wish to redraw more, you will have to pay an additional fee per transaction.
There you have it, some of the essential things you need to know about mortgage repayments. It pays to understand what each feature means to help you choose the best option for you.
Now if you're looking for a new home loan or would like to lower your repayments, the qualified advisors at Rate Detective are ready to help you. You can use their expertise to get rate comparisons from Australia's top lender, which would enable you to make the right choice when it comes to your mortgage.