Home Loans

A “home loan” or “mortgage” is a loan advanced to you by a financial institution in return for security over the property you are using the loan to buy. Typically a home loan will be a 25 or 30 year term, with regular repayment amounts fortnightly or monthly that are designed to pay off the loan over the contracted term.

The loan is secured against your property so if you are unable to continue paying the loan, the lender may ultimately require you to sell the property to settle the debt.

Given property prices in Australia, a home loan is realistically the way by which the majority of people will afford to buy a house.

The most common types of home loans that people would know about are variable rate home loans or fixed rate home loans:

Variable rate home loan

A variable rate loan means that the interest rate will rise and fall (vary) over the period of your home loan.

The main advantage of a variable rate loan is flexibility. While you must meet your minimum monthly repayment, you can usually pay more if you want to. There is also no break fee because there is no fixed term for you to break, so you can sell your property and move without the extra fees and charges that would apply to a fixed rate home loan.

Fixed rate home loan

The fixed rates on home loans are reasonably low at present. A fixed rate loan simply means that the interest rate is “fixed” for a certain amount of time – commonly 1, 2,3, 4 or 5 years.

The main advantage of a fixed rate loan is that it gives you certainty of repayments over the fixed term; because the interest rate is guaranteed not to go up (or down) over the fixed period, it can be a way to budget your costs.

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