Home Loan Options

Getting out of mortgage debt takes discipline and the correct mortgage structure. No 2 clients are the same and it takes a detailed financial analysis to not only get on top of your finances but optimise your mortgage structure. When it comes to home lending there are 5 main types of mortgages and it often takes a combinational approach to structure your mortgage in a way that ensures you get out of debt faster.
 

1. Fixed Rate Mortgage

2. Offset Mortgage

3. Revolving Credit Mortgage

4. Interest Only Mortgage

5. Floating Mortgage

 

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1. Fixed Rate Mortgage

A fixed-term mortgage is a type of mortgage where the interest rate remains fixed for a set period of time, typically ranging from one to ten years. During the fixed term, your mortgage payments remain the same, making it easier to budget and plan for your monthly expenses. Once the fixed term ends, the interest rate may change to the lender's standard variable rate, which can be higher or lower than your fixed rate.

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One of the main benefits of a fixed-term mortgage is that it offers certainty and stability. Because your interest rate is fixed, you know exactly what your monthly payments will be for the duration of the fixed term. This can make budgeting and financial planning easier, as you don't have to worry about your mortgage payments changing unexpectedly.

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Another benefit of a fixed-term mortgage is that it can offer protection against rising interest rates. If interest rates rise during your fixed term, your mortgage payments remain the same, giving you a degree of financial security. This can be especially useful if you're on a tight budget or have other financial commitments.

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However, there are also some potential downsides to consider when it comes to a fixed-term mortgage. One potential downside is that the interest rate may be higher than with other types of mortgages, such as an adjustable-rate mortgage. This means you may end up paying more in interest charges over time, especially if interest rates drop during your fixed term.

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Another potential downside of a fixed-term mortgage is that it may not offer as much flexibility as other types of mortgages. Because your payments are fixed, you may not be able to make extra payments or pay off your mortgage early without incurring penalties. This can limit your ability to save money on interest charges over the life of your mortgage.

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In summary, a fixed-term mortgage can offer certainty and stability when it comes to your mortgage payments and protection against rising interest rates. However, it's important to carefully consider the potential downsides, such as higher interest rates and limited flexibility, before choosing this type of mortgage. As with any type of mortgage, it's important to shop around and compare different options to find the one that best fits your needs and financial goals.

 

2. Interest Offset Mortgage

An interest offset mortgage is a type of mortgage that allows you to link your mortgage account with your savings account or other accounts, such as a checking account or a credit card account. The interest you pay on your mortgage is calculated based on the difference between your outstanding mortgage balance and the balance in your linked accounts. This means that your savings can offset the interest charged on your mortgage, potentially saving you money on interest charges over time.

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One of the main benefits of an interest offset mortgage is that it can help you save money on interest charges over the life of your mortgage. By linking your savings and checking accounts to your mortgage, you can reduce the amount of interest charged on your mortgage. This can be especially useful if you have a large amount of savings that you want to keep accessible, but also want to use to offset the cost of your mortgage.

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Another benefit of an interest offset mortgage is that it can offer greater flexibility than other types of mortgages. With an interest offset mortgage, you can link multiple accounts, such as a savings account, checking account, and credit card account, to reduce the amount of interest charged on your mortgage. This gives you greater control over your finances and can help you better manage your cash flow.

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However, there are also some potential downsides to consider when it comes to an interest offset mortgage. One potential downside is that interest rates on this type of mortgage may be higher than with other types of mortgages, such as a fixed-rate mortgage. This means you may end up paying more in interest charges over time, especially if you have a large outstanding balance.

Another potential downside of an interest offset mortgage is that it requires discipline and financial planning to use effectively. You need to have enough savings to offset the interest charged on your mortgage, and you need to be able to manage your accounts effectively to make sure you're taking advantage of the offsetting benefits. If you're not careful, you could end up accumulating more debt than you can afford to repay.

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In summary, an interest offset mortgage can be a useful option for reducing the amount of interest you pay on your mortgage and offering greater financial flexibility. However, it's important to carefully consider the potential downsides, such as higher interest rates and the need for financial discipline, before choosing this type of mortgage. As with any type of mortgage, it's important to shop around and compare different options to find the one that best fits your needs and financial goals.

 

3. Revolving Credit Mortgage

A revolving credit mortgage is a type of mortgage that works like a line of credit. With a revolving credit mortgage, you have a maximum borrowing limit and can draw on the credit line as needed. Interest is charged only on the amount of credit used, rather than on the entire credit limit, and you can make repayments at any time. The available credit limit will increase as you make repayments.

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One of the main benefits of a revolving credit mortgage is flexibility. You can draw on the line of credit as needed, so you have access to funds when you need them. This can be especially useful for unexpected expenses, such as home repairs or medical bills. With a revolving credit mortgage, you also have the flexibility to make repayments at any time, without penalty. This means you can pay down your debt faster and potentially save money on interest charges.

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Another benefit of a revolving credit mortgage is that it can help you save money on interest charges over time. Because interest is charged only on the amount of credit used, you can save money by making additional payments and reducing the amount of credit outstanding. This can help you pay off your mortgage faster and reduce the total amount of interest you pay over the life of the loan.

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However, there are also some downsides to consider when it comes to a revolving credit mortgage. One potential downside is that interest rates may be higher than with other types of mortgages, such as a fixed-rate mortgage. This means you may end up paying more in interest charges over time, especially if you have a large outstanding balance.

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Another potential downside of a revolving credit mortgage is that it requires discipline and financial planning to use effectively. Because you have access to a line of credit, it can be easy to overspend and accumulate more debt than you can afford to repay. To use a revolving credit mortgage effectively, you need to have a solid plan in place for managing your finances and making repayments on time.

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In summary, a revolving credit mortgage can be a flexible and convenient option for managing your finances and reducing interest charges over time. However, it's important to carefully consider the potential downsides, such as higher interest rates and the need for financial discipline, before choosing this type of mortgage. It's also important to shop around and compare different mortgage options to find the one that best fits your needs and financial goals.

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4. Interest Only Mortgage

An interest only loan is a repayment style where minimum repayments only include an interest portion. This keeps repayments low, which can be useful for households that have experienced reduced income (e.g. parental leave)
or are focusing on repaying other debt (e.g personal mortgage vs rental property mortgage). However, during the interest only period, the term of the loan continues to reduce. This means that repayments are generally higher at
the end of the interest only term than they would have been paying Principle and Interest.

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5. Floating Mortgage 

Floating Loans are also known as variable loans as the interest rate changes according to the wider market. As these rates are not locked in, they are more flexible allowing for additional repayments to be made without penalty. Repayments can go up or down as the interest rate changes and traditionally they are higher than fixed rates due to the level of flexibility.

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