Now that you have your home loan approved, how will you set it up so it behaves how you want it to? Here are some common questions that are easily answered if you get the right advise:
-Why isn't my Home Loan reducing?
- How can I make the most out of low interest rates?
-I want my Home Loan repaid before I retire!
-How can I build equity to get my next property?
There are many different ways and its really best to talk it through with your Mortgage Adviser who can design your home loan to suit your unique circumstances ...but here are a few combinations to get you thinking - I have put labels - so not the "official" name but you'll get the idea...
The Traditional- Long and steady
Usually over a long term paying Principle and Interest
maximum term 30 years or set to suit your budget.
-Great for first home buyers to settle into the home loan repayments
-Great if you are on a tight budget and need to stretch your repayments to the maximum
-Does not reduce quickly - More interest than principle paid in the first half of the loan - this is called a Table Loan - see Loan calculator
-Is reliant on property value increasing to build equity
* Review this structure regularly or at each Fixed rate review date to reflect the changes in your lifestyle
The Rapid Repay -Equity builder
A shorter term can reduce interest costs and build equity or achieve financial freedom quicker
-great if you are on a time frame to be " mortgage free" and save in interest costs!
-great if you have a higher income or disposable surplus income and can afford higher repayments
-Builds equity to get to the next property purchase quicker!
Small Bites of the Elephant
Split loan with a larger chunk over a longer term say 30 years and a smaller bit sized chunk repaid over a very short time - usually set to be repaid on next fixed rate review of the larger chunk - for example:
$300,000 home loan:
$280,000 over 30 years fixed for 2 years
$ 20,000 over 2 years fixed or floating
-Great if you like to see debt dissolve quickly, build equity and still be set to a repayment schedule.
-Great if you have irregular lump sums to place on the smaller portion
The DIY - Your'e in control!
Usually in place while you are building to allow for progress payments to be increased easily or if you have a high disposable income surplus.
An interest only structure so you are in charge of any principle repayments - the more you put in reduces debt quickly and minimises interest costs.
If building - this arrangement would usually be re-structured at the end of the build project to a Principle and Interest term loan, this structure allows you to make rapid repayments at your leisure - at some Banks it also allows you to re-draw what you repaid so you will need to be disciplined!
-Great if you have commission payments or high disposable income to repay down the floating component rapidly
-Great to build equity if you are not tempted to re-draw the funds
-Each lender has an "interest only" lending criteria so eligibility applies