Types of Home Loans

Types of Home Loans

When choosing the right type of home loan it is worth noting that there are almost a dozen individual options available to borrowers. From regular mortgages right through to more individualistic alternatives such as split interest and guarantor loans – picking the ideal type can help to save money, reduce stress and obtain a better deal.

Here’s a closer look at some of these loan types and the factors that make them different when compared to others.

Variable Interest Rate Loans

These types of home loans are the most commonly applied for by borrowers - and most banks and lending agencies will offer them. The fact that they rely on variable interest rates means that the amount paid back each month (or week/ fortnight depending on your repayment agreement) can be prone to fluctuation.

Fixed Interest Rate Loans

On the other side of the coin are fixed rates of interest – a type of loan that extends a fixed rate on any interest paid back for a particular amount of time. This can be beneficial as it can protect the borrower from increases in rates; but it can also result in a loss if these rates should ever drop, as the fixed rate will always remain the same.

Investment Loans

These types of loans often feature lower interest rates as standard; as well as options to provide a lower sum as a deposit and other advantages. Their main purpose is to provide cash support to borrowers that are purchasing a home for investment purposes – usually to let out to tenants, or to renovate and resell for a profit.

Guarantor Loans

By using a guarantor, even an individual with a poor credit score can sometimes secure a loan in their own name; but is backed by the financial earnings and capabilities of the person guaranteeing their loan. If the individual isn’t able to repay what they owe, then the onus will fall to the guarantor. These loans will often require other factors to secure the cash and provide reassurance to the bank. See more on loans for people with bad credit

In Australia, some banks will accept as little as 5% deposit as long as the potential borrower can promise to meet certain criteria. These loans aren’t readily available to everyone, but when they are a successful applicant could find themselves able to receive up to 95% of the cost of their new home from a bank. If there is equity in an already-owned property, the value can also be used to cover the deposit amount, potentially reducing the borrowers’ costs even more.

How much you can borrow will depend on your individual financial circumstances.