Confused about home loans? We Australians have become gluttons for information and entertainment about property, but how much do we really understand about the basics of home loans? Many Aussies don’t have a thorough understanding of home loans and how they operate, which is a cause for concern. Let’s bust some myths and clear the confusion.
Myth 1 – There’s no difference between basic loans and standard loans Home loan borrowers are spoilt for choice these days and there can be big differences between types of loans. When it comes to standard loans versus basic loans, it’s a bit like fare types with airlines. A standard loan will give you more features than a basic loan, but it can come with a slightly higher rate. The key is to only pay for features you need and are likely to use.
Myth 2 – Redraw lets me take money out of my home loan A redraw facility is one of the handiest loan features available. Yes, it might let you withdraw funds from your home loan, but only if you’re ahead with your loan. For instance, if you have made $10,000 worth of extra payments on your home loan you can potentially redraw up to $10,000 back out of the loan.
Myth 3 – I will lose out if I fix my home loan rate Right now interest rates are at historic lows and that has ignited the debate about fixed versus variable rates. You can lose out if the variable rate falls below the fixed rate, and that’s almost impossible to predict. However at present, fixed rates are below many variable rates, so it’s worth considering locking in a low fixed rate. If you wait until variable rates start to rise before fixing there’s a good chance fixed rates will have jumped ahead and that’s when you could miss out on the rate savings. Splitting your loan between fixed and variable rates is a solution that lets you enjoy the best of both worlds (take a look at Myth 5).
Myth 4 – Fixed rate loans are inflexible Fixed rate home loans have become a very exciting product in recent years – combining greater flexibility yet still with the certainty and ease of budgeting that a fixed rate brings. It does pay to pick your lender carefully as some banks offer more flexibility with fixed rate loans than others. With ME’s fixed rate borrowers can make up to $30,000 in extra repayments over the fixed term – it’s a sure fire way to pay off your loan sooner.
Myth 5 – I have to choose either a fixed or variable rate Borrowers can normally divide their loan into fixed and variable rate portions in what is called a ‘split’ loan. It doesn’t have to be a 50:50 split. You can usually nominate the fixed and variable break-up to suit your personal preferences, and the beauty of splitting is that you can take advantage of savings on falling rates but still enjoy some protection if rates climb higher.