For property investors, choosing which loan option provides the most savings can sometimes be a bit tricky. And they often just simplify the process by comparing the amount of monthly repayment on each loan option and deciding which loan option is the most feasible one based on it.
Our Loan Comparison Calculator lets you use two different loan options that can straightforwardly be compared. It lets you adjust the different variables affecting the loan and then shows the total overall payments and savings you can receive.
DEFINITIONS:
| Upfront fees: A percentage of the total fee that a purchaser must pay on top of the loan. | Loan amount: The total value of the loan applied for in a loan agreement. |
| Ongoing fees: This is charged every month or every year for administering your loan, often called ‘service’ or ‘administration’ fees. | Loan term: As indicated in the loan agreement, the number of years needed to repay the loan. |
| Introductory rate: The introductory interest rate given as a special discount on your home loan for a set period at the start of the loan agreement. | Initial per month: The initial value of the loan repayments to be made per month during the special discount rate period at the start of the loan. |
| Introductory term: The period where introductory interest rate at the start of the loan agreement is applied to your home loan. | Outgoing per month: The continuing value of the loan repayments to be made every month during the normal interest rate period which happens from the time the special discount rate ends until the completion of the loan term. |
| Ongoing rate: The ongoing interest rate of the home loan starting right after the introductory rate ends. After the introductory rate ends, it is the ongoing interest rate of the home loan. | Total payable: The total amount of loan repayments made and determined only when the loan is fully paid. |
DISCLAIMER: The data provided by this calculator is designed for payments to give an approximate estimate based on the inputs keyed in and assumptions as indicated.
Definition of Home Loan
A home loan is a loan advanced by a bank to a person buying a property or land. As you get a mortgage, you decide how much of the property value you want to borrow and the period you agree to pay it out.
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How does Home Loan work?
This is how a home loan usually works:
- Pre-Approval – Another term for conditional approval whereby the lender establishes your financial position and provides you an indication as to how much you can borrow. (Note: Pre-approval still needs to proceed to lender’s full and final approval. It is not a guarantee of final approval.)
- Purchase property – When you purchase a property at an auction, a deposit should be paid within the day. But if doing it via a private sale, then you may still have to pay a small deposit, with the remaining balance subject to any conditions specified on the contract like property inspections and finance.
- You pay a deposit – Acquire your home with a deposit. As a general rule, the higher deposit that you’re able to put down, the less amount you’ll need to borrow. For this reason, it may be an advantage to save as much as you can before applying.
- Apply for a home loan – There are a few approaches to obtaining a loan, such as through a mortgage broker, at a lender’s branch, or a bank.
- Lender valuation – When you’ve secured your property, your lender will typically do an inspection and valuation of the property before finally approving it. This is to guarantee that the value of the property is aligned with its purchase price.
- Sign the loan documents – If the lender has done their valuation and has approved the price to be paid, the lender will be able to give you the loan contract for signing as you simply wait for settlement.
Different Types of Home Loans
Variable rate home loans
A variable rate home loan means your repayments can increase or decrease based on fluctuations in the official cash rate. This suggests that your payments increase when interest rates are high and decrease when they are low.
Fixed rate home loans
A fixed rate home loan lets you lock in an interest rate on your loan, typically anywhere from 1 to 5 years. One advantage of this type of loan is that it protects you against interest rate escalations, but it also means that drops in interest rates won’t benefit you. Fixed rate home loans generally do not offer features such as offset accounts and redraw facility.
Interest-only home loans
For an interest-only home loan, your repayments will only cover the interest on the amount borrowed or the principal during the set period. This implies that for this set period, your repayments are not used up for the amount borrowed, so the principal loan amount stays the same.
Split rate home loans
A split home loan is if a customer pays a partly fixed rate and the rest, a variable rate on their home loan.
Principal and interest home loans
When we say a loan has principal and interest repayments, it means that the borrower has to pay down the principal loan amount together with the interest that accrues throughout the life of the loan.
Owner-occupier home loans
These are home loans where the borrower plans to live in the property vs. renting it out for income. Interest rates on these mortgages tend to be somewhat cheaper than investor loans.
Owner-occupier loans are described based on the borrower’s objectives — whether they’re getting the loan to buy their first home, to buy another home, to build a home on vacant land, or to refinance an existing home loan.
These differences can affect the products or rates you can access in a few cases. For instance, you may be qualified for certain discounts or special rates if you’re a first home buyer.
Refinancing your Home Loan
Refinancing is a remarkable way to save on your home loan. It is replacing your current home loan with a new one, either from your existing lender or through a different one. Do a comparison of the wide range of home loan products available in the market to know if you can benefit from a lower interest rate and thus, save on monthly repayments.
Knowing the Home Loans’ Interest Rate
It’s crucial to recognize that interest rates are one of many factors to consider when you check and compare home loans. There are various kinds of interest rates (stated as a percentage) and how much you pay is based on your credit provider as well as the terms of your agreement. Remember that there could be other related fees with the loan you have selected.
The types of interest rates may include the following:
- Variable rate: The interest rate varies as cash rates change and adjustments are made by the loan provider. This can either increase or lessen the interest that you have to eventually pay.
- Fixed rate: If your preference is to lock in the amount you pay within an established period during the loan term, then, you are choosing a fixed rate.
- Partially-fixed rate: You have a choice for a “split loan” which means one portion of your mortgage is variable and the other one is fixed.
- Introductory rate: This is also called a “honeymoon rate” that’s often a lesser rate for a brief period when you initially sign up (usually the first year, sometimes up to 2 years) that some credit providers may offer. Just make sure you know how much interest you’ll be paying after this period is finished, too.
How Much can you Get for a Loan?
Many mortgage providers shall evaluate how much you can get a loan depending on various factors. Check the list below as you could be asked the following:
- if you are single or part of a couple;
- total count of dependents who rely on your support;
- what property are you looking – is it for a home or as an investment property;
- when you’re planning to buy;
- the amount of your income;
- how much you pay for daily living costs and bills;
- other loans you have that you’re presently paying for.
Calculating Home Loan repayments
When you want to know approximately the amount of your loan repayments per month, a mortgage calculator is a useful tool that can help. Several dependable tools that can be found online are designed to take away some of your speculations. A home loan calculator is a helpful approach to make estimates on these items:
- the amount you can borrow;
- the number of repayments you can have.
An interest-only mortgage calculator can assist you make estimates on some additional costs like:
- the cost of a potential interest-only mortgage;
- the cost of potential repayments before an interest-only period and after it versus a principal and interest loan.
How do I Pay off my Mortgage Faster?
Here are suggestions that may help you to pay off your mortgage faster:
- Check around: Start looking and checking around for a lower interest rate than your current loan and consider the extra charges for changing or avoid if possible.
- Make higher and steady payments: This looks easier said than done as doing the regular and bigger payments on your loan could cut the loan by a number of years. Normally, most of your payments go towards paying off interest within the 5–8-year period. Making extra payments at the start could lessen your interest bill and can assist in paying off your loan faster. However, if you are on a fixed rate loan, then extra payments may be limited or not possible.
- Consistent payments: If your interest rates are on a downward trend, it may be helpful to keep your repayment amount the same. In doing this, you will probably shorten the period of your loan without increasing or changing your current repayment agreement.
How much is Mortgage Insurance?
The cost of lenders’ mortgage insurance is usually part of your home loan amount and this can be costly on your part, amounting up to thousands. Different factors can affect the cost of your Lenders Mortgage Insurance (LMI), or if you are required to pay it at all, such as:
- The size of your loan: The higher your loan, the bigger the financial risk that the lender covers for you.
- How much is your deposit: LMI will be added typically to the principal of the loan where there is a lower deposit (It’s better to confirm with your loan provider to check the required deposit so you can avoid LMI payment).
- Note the additional fees: You’ll need to check with your lender about probable extra fees and their full costs like administration fees, refinancing fees, and more.
What is the Longest Home Loan Term Available?
A typical standard home loan’s duration can continue from 25 years to as long as 30 years. Some lenders are also providing loans within the 40-year timeframe. Though the 40-year loans can help you get into the market quicker with reduced payments for the lengthy duration of the loan, it could potentially add extra interest charges.
