types of mortgages

let stellar finance group summarise the type of home loans available to you

so many loans, such little time

let's start with the type of repayments

variable

A Variable Rate Loan has an interest rate that fluctuates with the market, primarily driven by changes made by the Reserve Bank of Australia. This flexibility can be beneficial if interest rates decrease, as it allows you to potentially reduce your loan balance faster with extra repayments without penalty. However, it also means that your repayment amounts could vary, requiring financial readiness for potential rate increases. This loan type is ideal for borrowers seeking flexibility and willing to manage the unpredictability of payment amounts.

fixed

A Fixed Rate Loan locks in your interest rate at settlement, giving you consistent repayments and shielding you from market fluctuations for up to 5 years, despite the longer loan term of 25 to 30 years. This stability aids in budgeting and financial planning, offering protection against rising rates. However, the trade-off is missing out on potential savings from rate decreases, making this loan best for those prioritizing budget certainty over flexibility.

offset or redraw?

both have their benefits

offset

An offset account can reduce the interest you pay on your home loan by linking to your mortgage and functioning like a transaction account. You can deposit and withdraw funds anytime. The money in the offset account effectively reduces the loan balance for interest calculation purposes. For instance, if your loan balance is $300,000 and your offset has $50,000, you only pay interest on $250,000. The more you keep in your offset, the less interest you pay, making it a smart way to save on your home loan costs.



redraw

A redraw facility, distinct from an offset account, offers another way to save on your home loan. It allows you to access any extra payments you have made beyond your required minimum repayments. For those paying weekly or fortnightly via direct debit, only the surplus amounts above these minimums are available for redraw. Over the term of your loan, the amount available in your redraw may decrease, ensuring that by the end of the loan term, both your loan balance and the redraw amount reach zero.

principal or interest?

do you want to pay down the principal or pay lower repayments but no principal?

principal and interest repayments

Principal and Interest Repayments are a popular choice among borrowers, as each payment reduces both the principal—the original sum borrowed—and the accrued interest. Over the loan term, an increasing portion of each payment goes towards the principal, rapidly building equity in your home. Key features include a progressive decrease in principal with each installment, boosting your equity and expanding your financial flexibility for future investments and expenditures. This loan type is perfect for homeowners who are focused on achieving full ownership and enhancing the equity of their property, providing a solid foundation for future financial opportunities.


interest-only loan

An Interest-Only Loan allows you to initially pay just the interest on the borrowed amount, not the principal. This arrangement can significantly lower your monthly payments temporarily, providing financial breathing space for other investments or expenses such as renovations. This type of loan is particularly appealing for property investors or those planning to sell the property soon, as it offers enhanced cash flow management. However, keep in mind that the interest-only period is typically limited to up to 5 years, after which you'll need to start repaying the principal. Lenders will assess your capability to meet both interest and principal payments in the future before granting this type of loan.

building and upsizing

these structures are for those building a home or moving into their next one before they sell

construction loan

A Construction Loan is specifically designed for building a home, providing funds in stages according to construction milestones, rather than in one lump sum. This method ensures you only pay interest on the money you've actually used, aligning your cash flow with the progress of the build. Key features include incremental fund releases that match construction phases and interest charges applied only to drawn amounts, significantly cutting costs during the build. Ideal for new home construction, this loan type offers a flexible payment schedule tailored to the unique timeline of your project.

bridging loan

A Bridging Loan offers short-term financing to support you in buying a new property while still selling your existing one. It provides up to 6 months to sell your current home, ensuring you have the necessary funds to secure your next one without rush. This loan helps maintain cash flow for your new purchase and smooths the financial transition between selling and buying, reducing stress and providing breathing space. Ideal for those needing to move swiftly without sacrificing the sale price of their current property, a Bridging Loan is a strategic financial tool for managing property transitions efficiently.

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The information provided on this site is on the understanding that it is for illustrative and discussion purposes only. Whilst all care and attention is taken in its preparation any party seeking to rely on its content or otherwise should make their own enquiries and research to ensure its relevance to your specific personal and business requirements and circumstances. Terms, conditions, fees and charges may apply. Normal lending criteria apply. Rates subject to change. Approved applicants only.
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