Buying a house is a significant milestone in people’s lives. In addition to having a place of your own, you can also consider your home as a major investment. But, one of the biggest factors that can deter some people from purchasing their own house is its overall cost.

Fortunately, there is a practical way to get around this issue, which is by applying for a home loan. Home loans are additional funds provided by banks, lenders, and creditors that you can use to buy a house. As part of your agreement with the lender, you will then have to pay back your loan within a specified period.

In Australia, there are various types of home loans that you can get. These different types are characterised by their unique terms. In order to properly determine which type of home loan is ideal for you, it’s important to first gain an understanding of their nature and how they work.

In this guide, we’ll discuss the three main types of home loans that you can get in Australia.

Fixed-Rate Home Loans

As its name suggests, a fixed-rate home loan features a defined and unchanging interest rate throughout the fixed term, which usually lasts for one to five years. Of course, this will depend on various factors, such as the amount of your loan and the total duration of the term. Once the fixed term ends, you have the option of continuing with a fixed rate.

One of the main advantages of this type of loan is that you’ll no longer have to worry about a fluctuating interest rate even when the market rate trends change. This means that you’ll be able to allocate or plan an accurate budget for your regular loan repayments. This helps you avoid unexpected expenses related to your loan and higher repayment values.

Unfortunately, the main advantage of fixed-rate home loans can also be regarded as one of its major downsides. Since you’re confined to an unchanging interest rate, a reduction in the national market interest rates won’t affect your loan. In other words, you’ll still end up paying for the same amount even if the interest rates go down.

In addition, many banks and lenders don’t allow their clients to make additional repayments for their fixed-rate home loans. This lack of flexibility can hinder you from settling your loan earlier. Also, fixed-rate loan borrowers are usually not allowed to sell the property they purchased until the term has ended.

Variable Home Loans

Another type of home loan that you can get in Australia is a variable loan. Generally, variable home loans are the complete opposite of fixed-rate home loans. In this type of loan, your interest rate will increase or decrease depending on the current market rate trends.

For instance, if the Reserve Bank of Australia declares that the official cash rate will increase, then your loan provider will most likely increase your interest rate. On the other hand, if the cash rate goes down, then your loan’s interest rate will also drop.

But, keep in mind that the amount at which your loan’s interest rate increases or decreases will vary depending on the policies and preferences of your loan provider.

The flexibility that variable home loans offer has its own advantages and disadvantages. Although this loan option allows you to make additional repayments, it can also be challenging to set a budget due to the tendency of the interest rate to fluctuate over time.

Split Home Loans

Split home loans combine the features of both fixed-rate and variable loans. For this home loan option, a portion of it can have a fixed interest rate, while the other has a variable rate.

You can decide how much of your total loan will have a fixed or variable rate. For instance, 70% of your loan rate can be fixed, while the remaining 30% will have a variable rate. Doing so allows you to take advantage of the benefits of these two loan types.

Applying for a split home loan provides both flexibility and stability in your repayments. In addition to minimising the financial effects of a sudden spike in interest rates, split home loans also provide you with the option to make additional repayments.

This option can be an ideal choice if you’re looking to purchase a home since it can make a part of your home loan repayments certain while providing flexibility to the other portion to move with the current market trends.

Probably the only thing that you have to take into account when applying for a split home loan is its other associated costs. In addition to your regular repayments, you might also be charged for other fees that are related to the management of fixed rate and variable rate loan accounts. You can check your loan option’s other fees by carefully reviewing its terms or getting in touch with your preferred lender.

Ultimately, when it comes to choosing the type of home loan that you should apply for, you should base your decision on your needs, preferences, and your financial ability to make regular repayments. You should also make sure to apply for a home loan from a trusted and accredited lender in Australia, such as BankWAW.

BankWAW is a community-owned credit union that provides a wide variety of banking services. These include different types of loans. We offer home loans that have fixed and variable interest rates. We also provide other benefits to our borrowers, such as unlimited repayments, unlimited redraws, no monthly account-keeping fees, and flexible repayment options.

As a community-owned bank, we are dedicated to helping our customers grow financially through our services. As part of our commitment to customer service, we’ll help you get the right home loan option. Apply for a home loan today and get the house you’ve always wanted.