Home Loans Mildura

Home loan types

Principal and Interest Loans

This home loan is possibly the most common type of loan on the market.  Payments are made to the home loan account and the amount paid includes a portion allocated to paying off the amount borrowed (the principal) and also an amount for Interest. You will not generally see the amounts as separate figures as the lender will deduct the interest usually on a monthly basis from your payments.
Interest Only Loans

Interest only as the name suggests, will only cover the interest portion of your loan and does not cover any principal payments. This means you will not actually be making any reductions to the loan that was provided.
This type of loan structure can sometimes be recommended to investors who are looking to purchase again and keep some money aside for their next home. This type of loan may also increase your tax benefits depending on your individual circumstances.
Split Rate Home Loans

A split loan carries the benefits of both a fixed and variable loan and with most lenders you can choose how much of your loan you would like to have fixed and the term you would like to lock your loan in for; the remainder can be placed on a variable loan. The benefit of this type of loan is you can have the certainty of a fixed payment amount and also have the flexibility of a variable rate loan.
Line of Credit

A line of credit is a type of loan where you are given a set cash limit that you may withraw from. You elect to pay into this facility as often or as little as you like as long as you are within your approved credit limit.
Generally wages are paid directly into your line of credit meaning you are reducing the interest on your loan with every dollar that remains paid off. Conversely as you draw money from this facility the interest increases accordingly and is charged to your line of credit account at the end of the month.
Care must be taken for this type of loan and should only be considered by someone who is disciplined with their money.

Redraw Facilities

A home loan redraw facility is a common feature offered to customers with a variable rate loan.
Having a redraw facility on your home loan allows you to make additional repayments to your loan and have access to withdraw these additional funds if required. This means you are reducing the interest on your loan with every extra dollar that is paid.
Generally interest charged on a home loan is much higher than what a bank will pay you for money held in a savings account, so you may be better off storing your extra cash in your home loan rather than your bank account....saving interest rather than earning interest.
Care must be taken as some institutions will charge a fee for withdrawing your additional repayments.

Offset Accounts

An offset account is a transaction account that is linked back to your home loan and works in a similar way to a redraw facility.
The difference between an offset account and redraw is that an offset account is a stand alone account and is separate to your home loan.
An example of how an offset account works is as follows:
Interest is charged on the loan balance less any cash held in your Offset account-
eg. Loan amount $150,000 LESS Cash held in Offset account $50,000
Interest is only charged on $100,000.
This type of account may be useful if you require access to your additional funds or prefer to have separate accounts for your cash.
Most banks offer unlimited offset accounts so if you usually maintain a substancial balance in each of your accounts this may help to save some interest on your home loan.
Contact us to see if an offset account is suitable for your needs.

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