Mortgage Basics

The type of loan you select will affect not only the amount of interest you pay to the lender and the term or life of the loan, but can also have other options and add-ons that can help you realise future financial goals.

Interest Rates and Life of the Loan

Typically the maximum life or term of a mortgage is 30 years, but almost any other time period can be negotiated, with shorter loans sometimes attracting cheaper interest rates. A lower interest rate and shorter term on the loan means you will pay less interest to the lender over the term of the loan; Saving you money.

However, monthly payments on a shorter loan will generally be higher than those on the same loan set for a longer time period. The higher payments are obviously required to repay the debt sooner.

Conversely, a long term loan with smaller payments can be easier to budget for and mean less lifestyle sacrifices will need to be made. If you can afford to pay off your loan sooner, then a shorter term loan is often more advantageous.

Fixed Rate vs Variable Rate

The two most common loans offered are fixed rate mortgages and variable rate mortgages. A fixed rate mortgage comes with an interest rate that is fixed for a set amount of time whereas an variable rate mortgage will fluctuate as the market changes.

The benefit of a fixed rate mortgage is to protect you from the risk of increasing interest rates and subsequently higher repayments. If interest rates rise, you are fixed on paying the lower rate. Conversely, if interest rates should fall, you are locked into the fixed rate and will pay above market rates for your home loan.

A variable interest rate home loan allows interest rates to fluctuate with the market, depending on the economic environment.

Initially, a variable rate will be lower than the fixed rate loan. However, if interest rates do rise in the future, it is likely the fixed rate loan will be cheaper.

Deciding whether a variable or fixed rate loan is best for you will come down to your unique financial situation. For example, if you expect your income to rise in the future, then a variable rate loan will help you to pay more back in the short term and should rates rise, you can still afford the loan because of your increase pay. You should also consider your risk tolerance. A fixed mortgage lets you plan and budget sometimes years in advance to make sure you can continue to afford the loan.

If you need help identifying which loan option is best for you, contact a Mortgage Store broker for an obligation-free discussion. Your broker will advise you on the various options and benefits of different home loan products and work to get you the best deal on your loan.

KB:     Q0012
Last Updated:     26 Sep 2006

Contact me about a home loan:
*First Name:
Please enter your first name.
Please enter your Surname.
Please enter your email address.

Please check your email address.
Please enter your phone number.
*Loan Amount:
Please enter a loan amount.
Please tick.
I understand that all information given is private and will not be shared.

Low Doc Home Loans
Home Loans for the Self-employed.
Full Doc Loans
Loans based on income and employment.
Fixed Loans
Locking into a fixed payment makes budgeting easier.
No Deposit Home Loans
100% home loans with no deposit.
Refinance Mortgage
Get a better deal on your home loan.
Variable Loans
Offers the flexibility of making extra repayments.
Home Equity Loan
A line of credit that works like an ordinary credit card.
Line of Credit
Finance your home, business and lifestyle.