can be a very confusing prospect, particularly for those new to the mortgage world. There are so many option available to potential purchasers that doing thorough research is essential to get the best loan for your circumstances. There are many resources available to those looking at taking out a mortgage, most of these are located online and a great place to start is with the ASIC website moneysmart.gov.au/
There are so many options that the array of choice can be bewildering, this is where a mortgage broker can be of invaluable assistance. They will have had many years in the lending industry and have access to up to date information and credit options to service any kind of mortgage enquiry.
How to Pay Off a Mortgage Quickly
There are two main types of loan available on the market – the fixed rate loan and the variable rate loan. Each of these types of loans has many add-ons or applications that can change how the loan works and provide different options or benefits to the customer.
The basic difference between fixed interest and variable interest loans is that the rates of the variable interest loan is dependent on market forces and is determined by the Reserve Bank of Australia. The Reserve Bank will set interest rates every 3 months or quarterly. Often they will not change the interest rate and leave it set, at other times they may choose to raise or lower interest rates depending on the prevailing conditions of the economy and their charter which says:
“it is the duty of the Reserve Bank Board, within the limits of its powers, to ensure that the monetary and banking policy of the Bank is directed to the greatest advantage of the people of Australia and that the powers of the Bank … are exercised in such a manner as, in the opinion of the Reserve Bank Board, will best contribute to:
(a) The stability of the currency of Australia;
(b) The goal of full employment in Australia; and
(c) The economic prosperity and welfare of the people of Australia.”
The interest rates in Australia are currently the lowest they have been in over 40 years at 5.35% The highest rate was in 1989 and 1990 where the interest rate was 17%.
Fixed interest loans are as they sound, charged at a fixed rate of interest over a specified period – often 2 – 5 years. The lender fixes the rate depending on current economic climate, and is generally a little higher than variable rate loans. You do pay a little more for peace of mind. Again with the current rates very low these fixed interest loans can be very attractive. Once the fixed rate period elapses then the loan will revert to a variable rate.
There are many options for those wishing to take out a mortgage. For first time homebuyers the honeymoon loan can appear to be very attractive as they often have amazingly low interest repayments for the first year. Sometimes these loans can turn into a fixed rate loan with a higher level of interest than one may have taken without the honeymoon period, or can be variable rate loans where the market and Reserve Bank periodically adjusts the interest rates.
There is also the interest only loan where the mortgagee pays only the interest portion of the loan and does not pay any of the principle. This means that monthly repayments are far less than for a loan which included principle repayments. These loans are often very good for property developers who can ‘flip’ houses in a short period of time. They may choose to purchase a house or land and renovate or build and then resell at a profit. By only paying the interest on the loan they free up liquid assets for improving the value of the property instead of hefty mortgage repayments. Once the home improvement is complete the developer will on sell the property, hopefully at a tidy profit. They will then repay the bank for the principle of the loan and pocket any remaining profit, only to find other property that can be flipped in a similar fashion.
This facility allows a mortgagee to pay extra on the principle of the loan, thus reducing ongoing mortgage payments by minimising the interest calculated on the principle. But with a redraw facility if the mortgage holder requires additional cash then they are able to extract the additional funds placed on the home loan to use as they see fit. This option can be very helpful in terms of giving flexibility and leveraging savings, but can come with some fees attached to enable this facility with a lender. Be sure to examine what the additional fees are for this facility.
The Offset Account allows for an additional savings account to be attached to the home loan and reduces the interest paid by the amount within the account. So if the loan was $100,00 dollars and you had $20,000 in an offset account hen the interest payable would be only on $80,000. This facility can be great for those who are adept at savings.
These are but a few of the options that are available on a Mortgage in Australia. There are many other options available and to have a Mortgage Broker in Brisbane contact you to discuss your home loan options please click here: