Newspaper article Daily Examiner (Grafton, Australia)

Know Market to Pick a Loan

Newspaper article Daily Examiner (Grafton, Australia)

Know Market to Pick a Loan

Article excerpt

LOW interest rates support and energise the housing market more than any other factor. In May, the Reserve Bank cut the official cash rate to 2.75%, the lowest level in more than 50 years, so itas little wonder that more investors and home buyers are signing up for cheap finance.

But itas important to work out what kind of loan suits your needs and to then compare various lendersa deals for that loan product.

It can seem as if thereas a confusing smorgasbord of emotively named mortgages out there (think: aBreakfreea and aRocket Repaya), but there are essentially six types of home loans to choose from.

Fixed loans

In todayas low-interest-rate environment, fixed-rate loans are priced well below variable-rate loans.

With a fixed product, the interest rate is fixed for a length of time that you specify, usually for one year to five years.

Three-year terms are the most popular. Tread carefully, though.

Most fixed loans limit the amount of extra repayments you can make, and youall pay abreaka fees to exit a loan early. Still, fixing part or all of your borrowings can make sense, particularly when fixed interest rates fall below five per cent as they have in recent months.

Basic variable

The interest rate for basic variable loans is typically 0.5% per cent below the standard variable rate. The no-frills basic loan also often provides a redraw facility, but you need to fully understand the borrowing conditions.

The catch-22 of basic variable loans is that many do not permit interest-only repayments.

You have to make principal and interest repayments, which reduces flexibility and does not suit the repayment and planning needs of many investors.

Discount variable

This is a bargain-basement product designed to rope you in. You get a discounted interest rate for the first 12 months, after which you pay the standard variable rate. …

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