Finding the right financing option for your home Loan
options can be overwhelming. At Buyvest, we’re here to simplify the process and guide you in selecting the right loan to help you achieve your property goals. With over a decade of experience in the mortgage industry, we understand the importance of finding a financing solution that aligns with your financial situation. This guide will break down essential loan types, features, and considerations to make the home loan process easier for you.
Understanding home loan basics
Before diving into specific loan options, it's essential to grasp the fundamentals of home loans. This knowledge will help you make an informed decision that best suits your needs.
Interest rate types
The interest rate is a critical factor that determines how much you’ll pay to borrow money. It impacts your monthly repayments and the total cost of your loan over time.
Loan term
Home loan terms typically range from 25 to 30 years, though there are options for shorter or longer terms. Your loan term directly affects your monthly repayments and the total interest paid throughout the life of the loan.
Loan features
Loans come with various features such as offset accounts, redraw facilities, and repayment flexibility. These options can enhance the functionality of your loan and help you save money in the long run.
Fees and charges
Home loans may include various fees such as application fees, ongoing fees, discharge fees, and potentially break costs for fixed-rate loans. Understanding these costs upfront can help you avoid surprises later.
Variable rate loans
Variable rate loans are a popular choice among Australians for their flexibility and potential savings. At Buyvest, we’ll help you navigate the advantages and considerations of this loan type so you can make the best decision for your future. With a variable rate loan, the interest rate changes in response to market conditions and lender decisions. Your repayments will increase when interest rates rise and decrease when rates fall. A key advantage is flexibility, allowing you to make additional repayments without penalties and refinance without break costs.
Advantages of variable rate loans
Variable rate loans offer numerous benefits, including:
Potential savings: When interest rates fall, your repayments decrease, saving you money over the life of the loan.
Flexibility: Make unlimited extra repayments, helping you pay off your loan faster and reduce interest costs.
Features to reduce interest: Offset accounts and redraw facilities can further reduce interest payments, putting you in control.
Ease of refinancing: Refinancing to another lender or loan product is typically easier and without break costs.
Disadvantages of variable rate loans
While variable rate loans come with great benefits, they also present some challenges:
Uncertainty: Interest rates fluctuate, making it harder to predict future repayments.
Rate increases: If interest rates rise significantly, your repayments could increase, which may strain your budget.
Financial stress: Sudden rate hikes might impact your finances, especially if you’re borrowing close to your capacity.
Who will benefit from a variable rate loan?
A variable rate loan is ideal for those who:
Are comfortable with some uncertainty in exchange for flexibility.
Have the financial buffer to absorb potential rate increases.
Want to make additional repayments to reduce loan tenure.
Value features like offset accounts and redraw facilities.
Believe interest rates will decrease or remain stable.
At Buyvest, we understand your goals and will work with you to find the best financing option tailored to your needs. Let us help you take the next step in your homeownership journey.
Fixed rate loans
For many first-time homebuyers, the stability and predictability offered by fixed-rate loans are invaluable. At Buyvest, we understand that you need peace of mind when it comes to your home loan, and a fixed-rate loan could be the solution you’ve been looking for. This type of loan locks in your interest rate for a set period, offering you greater control over your repayments. Let’s explore the key details to help you decide if a fixed-rate loan is right for your homeownership goals.
How fixed rate Loans Work
With a fixed-rate loan, your interest rate is locked in for a predetermined period (typically 1-5 years). This means:
Your interest rate will remain unchanged for the fixed term, regardless of market interest rate fluctuations.
Monthly repayments will stay consistent throughout the fixed period, providing you with certainty in your budget.
After the fixed term ends, your loan usually reverts to a variable rate unless you negotiate another fixed term.
Be mindful that break costs could apply if you pay off the loan early, refinance, or make large additional repayments during the fixed term.
Advantages of fixed rate loans
A fixed-rate loan offers several key benefits that make it an attractive option for certain borrowers:
Repayment certainty: Fixed repayments allow you to budget more effectively, knowing exactly how much you need to pay each month.
Protection against rate increases: If market interest rates rise, your rate stays the same, helping you avoid higher repayments.
Peace of mind: Fixed repayments reduce financial stress, providing stability and comfort in your home loan journey.
Easier serviceability assessment: Lenders may view fixed-rate loans more favourably, especially for borrowers who are near their borrowing capacity.
Disadvantages of fixed rate loans
While fixed-rate loans offer stability, there are some limitations to consider:
Missing out on rate decreases: If interest rates fall during your fixed term, you won’t benefit from lower repayments.
Limited flexibility: Many fixed-rate loans impose restrictions on extra repayments or charge fees if you exceed a certain repayment limit.
Fewer features: Fixed-rate loans often come with fewer features than variable loans, such as offset accounts.
Break costs: If you need to refinance or pay off your loan early during the fixed term, you may face substantial break costs.
Is a fixed rate loan right for you?
Fixed-rate loans are a great fit for borrowers who:
Value stability and predictability in their repayments.
Are borrowing close to their maximum capacity and need certainty in their payments.
Expect interest rates to rise in the near future and want to lock in a favourable rate.
Are early in their homeownership journey, where having clear and consistent payments is crucial.
Plan to hold the loan for at least the duration of the fixed term.
At Buyvest, we’re committed to helping you choose the financing solution that best aligns with your goals. Whether you want the security of fixed repayments or the flexibility of a variable rate, we’re here to guide you in making the best decision for your financial future.
Split loans
At Buyvest, we understand that finding the right home loan can be a balancing act. For many, a split loan offers the perfect middle ground, providing the benefits of both fixed and variable rate loans. This flexible option allows you to divide your loan into two portions: one with a fixed interest rate and one with a variable interest rate. With our expert guidance, you can tailor a split loan that suits your financial goals and risk tolerance.
How split loans work
A split loan works by dividing your total loan into two portions, each with its own interest rate:
One portion of your loan is fixed, offering you stability and predictability with set repayments.
The other portion is variable, giving you the flexibility to take advantage of market rate movements.
You have the freedom to adjust the split ratio to suit your needs—whether it’s 50/50, 70/30, or any other combination that works for you.
You can make unlimited additional repayments on the variable portion, helping you pay off the loan faster while maintaining the rate certainty on the fixed portion.
Advantages of split loans
Split loans allow you to enjoy a unique combination of benefits, giving you the best of both fixed and variable rate loans:
Balanced approach to risk: Split loans offer a cushion against interest rate increases on the fixed portion, while also allowing you to benefit from rate decreases on the variable portion.
Customisable risk profile: You can adjust the split ratio based on your financial goals, risk tolerance, and outlook on future interest rates.
Partial access to features: Enjoy the flexibility of features like offset accounts and unlimited extra repayments on the variable portion, while keeping the fixed portion stable.
Diversification strategy: Just like diversifying investments, split loans let you hedge your bets on interest rate movements, ensuring you're not fully exposed to one rate type.
Disadvantages of split loans
While split loans offer great flexibility, they come with some considerations that may impact your decision:
Complexity: Managing two portions of your loan can be more complex than having a single rate type, requiring careful monitoring.
Partial exposure to rate changes: While the fixed portion provides stability, the variable portion still exposes you to interest rate risk, which could impact your repayments.
Break costs on the fixed portion: If you decide to exit or refinance the fixed portion early, break costs may apply, just like with a fully fixed-rate loan.
Multiple loan accounts: Some lenders set up split loans as separate accounts, which could complicate the administration of your loan.
Is a split loan right for you?
A split loan is ideal for borrowers who:
Want to protect themselves from the risk of rising interest rates while still benefiting from potential rate decreases.
Are looking for a balance between the stability of fixed repayments and the flexibility of a variable loan.
Have some financial capacity to absorb rate increases but also want partial protection.
Plan to make additional repayments and value the stability of fixed repayments on a portion of their loan.
Are uncertain about future interest rate movements and want to hedge their bets.
At Buyvest, we’re here to help you navigate the complexities of home loan options and find the solution that best fits your goals. Whether you’re interested in a fixed, variable, or split loan, our expert mortgage brokers are ready to guide you through the process.
Principal and Interest - Loan repayment option
Principal and Interest (P&I) loans are a well-established way to repay your home loan, offering a clear and steady path toward full ownership. At Buyvest, we recognise the value of building equity in your property and providing you with a structured repayment plan. Let’s explore the benefits of P&I loans and how they align with your long-term financial goals.
How principal and interest Loans work
With a P&I loan, each repayment contributes to both the interest on your loan and a portion of the principal (the amount borrowed):
In the early stages of your loan, a larger portion of each repayment is used to pay the interest.
As the principal reduces over time, more of your repayment goes towards paying down the loan principal.
By the end of the loan term, your loan will be fully repaid, leaving you with full ownership of your property.
Advantages of principal and interest loans
P&I loans offer several compelling benefits that can help you build wealth and achieve financial security:
Building equity: As you make repayments, you increase your ownership stake in the property, building valuable equity over time.
Lower interest costs: Paying down the principal reduces the total interest paid over the life of the loan, making it a cost-effective option.
Clear path to ownership: The design of a P&I loan ensures that your loan will be fully repaid by the end of the term, leading to complete homeownership.
Lower interest rates: Typically, P&I loans offer lower interest rates than interest-only loans, making them an affordable option in the long run.
No refinancing required: Unlike interest-only loans, P&I loans don’t require refinancing at the end of the initial period.
Disadvantages of principal and interest loans
While P&I loans offer long-term benefits, there are some factors to consider:
Higher initial repayments: P&I loans tend to have higher repayments compared to interest-only loans, especially in the early years of the loan term.
Less cash flow flexibility: The higher repayments may limit your available cash flow for other purposes, which could be a consideration for some borrowers.
Potentially less tax-efficient: For investment properties, P&I loans may offer fewer tax advantages than interest-only loans, especially in the early years.
Is a principal and interest loans right for you?
P&I loans are a great fit for borrowers who:
Are purchasing their primary residence and want to build equity steadily.
Plan to own the property long-term and prefer a structured repayment approach.
Have sufficient income to manage higher repayments in the initial years of the loan.
Prioritize long-term financial stability and wealth-building over short-term cash flow needs.
Interest only loans - Loan repayment option
Interest-only loans provide the option to pay only the interest charges for a set period (typically 1-5 years) before converting to principal and interest repayments. This can be a beneficial option for certain financial strategies, especially for investment properties.
How interest only loans work
With an interest-only loan, you make repayments that only cover the interest charged:
During the interest-only period, the principal amount remains unchanged, and you don’t pay off any of the borrowed amount.
After the interest-only period ends, your loan will convert to principal and interest repayments, which will increase due to the outstanding principal.
The interest-only period typically lasts 1-5 years, providing short-term cash flow relief.
Advantages of interest only loans
Interest-only loans offer unique advantages that may suit specific financial situations:
Lower initial repayments: During the interest-only period, repayments are significantly lower than P&I loans, freeing up funds for other uses.
Improved short-term cash flow: The reduced repayments can provide additional cash flow for other financial goals, such as investments or renovations.
Potential tax benefits: For investment properties, the interest payments are typically tax-deductible, which can offer significant savings.
Strategic flexibility: Interest-only loans can be useful for borrowers undergoing property renovations, experiencing temporary income reduction, or pursuing an investment strategy.
Disadvantages of interest only loans
While interest-only loans provide short-term benefits, there are several considerations to keep in mind:
No equity building: During the interest-only period, you're not paying down the principal, meaning you're not building equity in your property.
Higher total interest costs: Paying interest on the full principal for an extended period can increase the total interest paid over the life of the loan.
Higher repayments after the interest-only period: When the loan converts to P&I repayments, your repayments will increase significantly, which could impact your budget.
Stricter lending criteria: Lenders may apply tighter criteria for interest-only loans and may charge higher interest rates.
Risk of negative equity: Without principal reduction, you're more vulnerable to market downturns, which could leave you owing more than your property is worth.
Is an interest only loans right for you?
Interest-only loans are ideal for borrowers who:
Are purchasing investment properties and want to maximize tax benefits.
Have a clear strategy for the property, such as renovation and resale, and expect higher income later.
Need temporary cash flow flexibility due to specific circumstances, such as a drop in income or a planned property upgrade.
Understand and have planned for the increased repayments that will occur after the interest-only period ends.
Whether you're leaning toward a Principal and Interest loan or considering the flexibility of an Interest-Only loan, Buyvest is here to help you navigate the options that align with your financial goals. With over a decade of experience, we guide you through the complexities of home loans and ensure you’re making the best choice for your future.
Specialised loan types for first home buyers
At Buyvest, we understand that first home buyers often face unique challenges. That’s why we offer a range of specialized loan types designed to make your homeownership journey easier. Whether you're looking for a low deposit loan or considering a guarantor loan, we're here to guide you in making the right decision for your future.
Low deposit home loans
Low deposit home loans allow you to purchase your first home with a deposit as low as 5-10%. These loans provide a quicker entry into the property market, even if you don’t have a large deposit saved up. Here's what you need to know:
Lenders Mortgage Insurance (LMI) is often required to secure the loan.
Interest rates may be slightly higher due to the smaller deposit.
These loans are frequently combined with first home buyer government schemes to provide additional support.
If you're looking to get into the market sooner, a low deposit loan could be a great option.
Guarantor loans
Guarantor loans use a family member's property as additional security, allowing you to purchase a home with minimal or no deposit. This option can be particularly helpful if you're struggling to save a large deposit. Key features include:
The guarantor’s property is used as additional security, which can eliminate the need for Lenders Mortgage Insurance (LMI).
While the guarantee is in place, it can reduce the guarantor’s borrowing capacity.
Once sufficient equity is built, the guarantee can often be released, providing more financial freedom.
Guarantor loans can be an excellent choice if you have family support and want to avoid the financial burden of LMI.
Home guarantee scheme loans & Shared Equity scheme
The Home guarantee scheme and shared equity scheme are government initiative aimed at helping first home buyers get into the property market with a low deposit. The home guarantee loans allow you to purchase with just a 5% deposit and shared equity scheme allows you to co-buy with the government with a 2% deposit, with no LMI requirement. However, there are some important factors to consider:
The scheme is limited by property price caps that vary by location.
A limited number of places are available each financial year.
Eligibility criteria must be met to qualify for the scheme.
If you're a first-time homebuyer, the HGS can be a valuable tool to reduce your upfront costs and avoid LMI.
Construction loans
If you're looking to build your own home, a construction loan is tailored to support this process. These loans provide progressive payments to builders as construction milestones are completed. Here's what makes construction loans unique:
Payments are made in stages, corresponding to specific construction milestones.
Interest-only repayments are often an option during the construction phase.
Upon completion, the loan typically converts to a standard home loan.
Assessment criteria focus on the completed value of the property, ensuring the project is on track.
Construction loans are ideal if you're planning to build a new home, providing the financial structure to support each phase of construction.
Important Loan features to consider
Beyond the basic loan structures, there are several key features that can enhance the functionality of your home loan and help you manage your finances more effectively. At Buyvest, we ensure our loan offerings come with flexible options to suit your needs.
Offset accounts
An offset account is a transaction account linked to your home loan. It can help reduce the amount of interest you pay by offsetting the balance against your loan balance. Key benefits include:
The balance in your offset account reduces the loan balance used to calculate interest, helping you save money.
You can access the funds in your offset account at any time, providing flexibility.
This feature is particularly beneficial for higher-income earners with substantial savings.
While helpful, offset accounts may come with additional fees or higher interest rates.
If you have significant savings and want to reduce your interest payments, an offset account is a valuable feature to consider.
Redraw facilities
A redraw facility allows you to withdraw extra repayments you've made on your loan. This feature can help you access funds if needed while still reducing your loan balance. Here's how it works:
Extra repayments made on your loan can be withdrawn if needed, providing flexibility.
Redraw facilities typically have fewer transaction options than offset accounts but are often more affordable.
Some loans may have minimum redraw amounts or limited free redraws per year, so it’s important to check the terms.
Redraw facilities are ideal for those who want to make extra repayments and retain access to those funds for future use.
Repayment flexibility
Repayment flexibility can make a significant difference in how easily you manage your loan. Look for loans that offer:
The ability to make additional repayments without incurring penalties, allowing you to pay off your loan faster.
Options to adjust your repayment frequency, whether weekly, fortnightly, or monthly, to match your income cycle.
Repayment holidays or reduced repayment periods during financial hardship, providing a buffer during tough times.
The ability to match repayments with your pay cycle, giving you more control over your cash flow.
Flexible repayment options can make your home loan more manageable, providing peace of mind if your financial situation changes.
Loan portability
Loan portability allows you to transfer your home loan from one property to another without the hassle of applying for a new loan. The main benefits include:
Save on discharge fees and application fees when you move homes, making the process more cost-effective.
Maintain your loan’s terms and features, providing stability as you move.
Avoid break costs on fixed-rate loans, which can be a significant saving if you’re on a fixed-rate loan.
Typically, the new property must be of similar or greater value to the original property.
If you plan on moving homes, loan portability can make the transition smoother and more cost-effective.
Frequently asked questions about home loan financing
How do I know which loan type is best for me?
Choosing the right loan type depends on several factors:
Your financial situation and stability of income
Your risk tolerance and how comfortable you are with uncertainty
Your long-term property goals and plans
Your views on potential interest rate movements
The specific features you may need, such as offset accounts
What's the difference between comparison rate and advertised rate?
The advertised rate is the basic interest rate applied to your loan, while the comparison rate includes both the advertised rate and most fees and charges, expressed as a single percentage. The comparison rate is a more accurate representation of the loan’s total cost and is helpful for comparing different loan options. However, it may not include all potential costs, such as break fees or fee waivers.
Should I choose the loan with the lowest interest rate?
While a low interest rate is important, it's not the only consideration. You should also factor in:
The loan’s features and how they align with your needs
The overall fee structure and ongoing costs
Flexibility for making additional repayments
Customer service and the lender’s reputation
Your long-term plans for the property
Sometimes, paying a slightly higher rate for a loan with better features or flexibility may save you more money over time.
How long should I fix my interest rate for?
The ideal fixed-rate period depends on:
Your need for repayment certainty
Your outlook on interest rate movements
How long you plan to stay in the property
Your potential need for flexibility
Many first home buyers choose fixed terms of 2-3 years to balance rate certainty with flexibility. Longer fixed terms (4-5 years) can offer more certainty but may carry higher break costs if your circumstances change.
Can I make extra repayments on a fixed-rate loan?
Most fixed-rate loans allow additional repayments, but there are limits:
Typically capped at $10,000-$30,000 per year during the fixed term
Exceeding these limits may incur break costs
Some basic fixed-rate loans don’t allow additional repayments
After the fixed term ends, you can usually make unlimited extra repayments
Check the specific terms of your fixed-rate loan to understand repayment limits.
What happens at the end of a fixed-rate period?
At the end of your fixed-rate period:
The loan usually reverts to the lender’s standard variable rate.
You’ll be notified by your lender before the fixed term ends.
You can negotiate another fixed-rate period if preferred.
You may choose to refinance with another lender without paying break costs.
You’ll gain full flexibility for additional repayments and other loan features.
Be proactive as your fixed-rate term ends, as the revert rate is often higher than competitive market rates.
How does an offset account save me money?
An offset account reduces the loan balance used to calculate interest:
For example, with a $500,000 loan and $50,000 in your offset account, you only pay interest on $450,000.
Interest savings are immediate and calculated daily.
Offset benefits aren’t taxable, unlike savings account interest.
You can access the funds in the offset account while reducing your loan’s interest costs.
For higher-income earners, offset accounts can be more beneficial than making additional repayments.
Is it better to get a loan directly from a bank or through a mortgage broker?
Both options have advantages:
Direct from a bank: Faster processing if you’re an existing customer, potential discounts with other products, and a simpler process for considering one lender.
Through a mortgage broker: Access to a wide range of lenders and loan products with potential access to better home loan rates, personalised advice based on your situation, help with paperwork, and ongoing support throughout the loan term.
For most first home buyers, a mortgage broker is an excellent choice due to their personalised service and access to exclusive deals.
How often can I refinance my home loan?
You can refinance as often as necessary, but consider the following:
Refinancing costs are usually recouped after 1-2 years of interest savings.
Frequent refinancing may affect your credit score.
Some loans may impose deferred establishment fees if refinanced within 3-5 years.
Refinancing can take 4-6 weeks to process and settle.
It’s typically a good idea to review your loan every 2-3 years or if significant interest rate changes occur.
What's the difference between a package loan and a basic loan?
Package loans bundle your home loan with other financial products, offering:
Discounted interest rates.
Waived fees on linked accounts and credit cards.
Potential discounts on insurance and other products.
An annual package fee (typically $300-$400).
Basic loans are standalone, offering:
Lower ongoing fees, or no fees.
Fewer features and less flexibility.
Potentially higher interest rates than a package loan.
Package loans often suit borrowers with larger loans (over $250,000) or those who need multiple products from the same institution.
With a solid understanding of the various financing options and a clear strategy in place, you're well-positioned to secure a home loan that supports your property goals while aligning with your financial circumstances.
How Buyvest can support you?
Have more questions about home loan financing? Contact us at Buyvest to discuss your specific needs. We're here to help you navigate the process and find the best solutions for your home loan.
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Important stuff:
Please note that the views and opinions expressed in this post are general information only, and this is not financial advice.
Any advice and information is provided by Buyvest Pty Ltd ABN 91 684 841 496, Australia Credit Licence No. 567392 and is general in nature, for educational purposes only and is not intended to constitute specialist or personal advice. This website has been prepared without considering your objectives, financial situation or needs. Therefore, consider the appropriateness of the advice for your situation and needs before taking any action. It should not be relied upon to enter into any legal or financial commitments. Specific investment advice should be obtained from a suitably qualified professional before adopting any investment strategy. If any financial product has been mentioned, you should obtain and read a copy of the relevant Product Disclosure Statement and consider the information contained within that Statement concerning your circumstances before deciding whether to acquire the product. You can obtain a copy of the PDS by emailing hello@buyvest.com.au. If you want to change your financial circumstances, such as applying for a loan, all loan applications are subject to credit approval.
All information on this website is subject to change without notice.
