Getting a mortgage

There are as many different types of home loans as there are types of home loan lenders. It can be a minefield for the uninitiated. Here’s a few starting points.

What are some of the basic types of mortgages?

Variable rate home loans

A variable home loan means that as interest rates change, the amount that you have to repay will change too. If interest rates go down, you pay less (great!) but if they go up, your repayments go up too.

Variable rate home loans often have very high levels of flexibility so you can pay more often or increase your payments when you have extra money to contribute. They may have a redraw facility.

Fixed-rate home loans

With a fixed interest home loan, you agree to a fixed rate over a set period of time, say from one to five years. This means that you are protected from interest rate rises but that you will not benefit if interest rates go down.

Some fixed interest mortgages (home loans) have little flexibility so that if you want to get out of the mortgage before the due date, there is a charge for doing so. You may also be locked into monthly payments with no option to pay weekly or fortnightly (paying more regularly can reduce the amount you pay over time quite dramatically).

Mortgage offset account

It is possible to attach your home loan to an account that is used daily, for example, an account that receives your pay and that you pay living expenses from. The advantage of this type of account is that any money in the account is offset against your home loan. In other words, money in your account is counted as a payment while it is there and reducing the debt on your home loan.

Reverse mortgage

Reverse mortgages are for people who want to access equity in their homes as they age without having to make regular repayments. This type of mortgage can suit home owners who are 60 years and older and who want to access cash now. The amount of the mortgage is paid when the property is sold.

Getting the right mortgage for you

Working out the right mortgage strategy for you is something you should discuss with your accountant or financial adviser. You can also google different mortgage providers and check out the information on banking and other mortgage lender websites.