The differences between loan types
Published by MFAA
The array of mortgages available helps a good finance broker to tailor a package to suit your needs. Here are just some of the options.
With a fixed-rate loan, you know exactly how much you’ll pay per fortnight or month for the fixed period of the loan (usually one to five years).
Variable rate mortgages
Repayments can change during the life of a variable-rate loan, so you may pay more or less as interest rates rise or fall.
Principal and interest mortgages
In this mortgage, you are paying the amount you borrowed plus the interest charged.
With interest-only, you are paying just the interest on the loan – you are not paying off any of the original principal.
Split home loan (fixed and variable)
You can choose to have part of your loan at a fixed rate and the other part can be at a variable rate. If rates do change, the interest will change on the variable part of your loan.
A land loan lets you buy a block of land without the pressure to build on it as soon as possible. Land loans are usually variable interest for up to 30 years.
For buying land, building or renovating your home, a construction loan may be appropriate. Usually, up to 90% of the property value can be borrowed.
This loan type allows you to convert a portion of your residential property ‘asset’ into cash or an income stream while still allowing you to continue to live in your home.
An MFAA Approved finance broker can explain which loan types suit your situation.