What type of mortage?

There is a variety of mortgage products available on the market. Getting the right one that fits your circumstances is crucial.

Contact the Fund Master Team and we will help you choose the right one that’s perfectly tailored for you and will also save you money.

Maximum mortgage term

The maximum mortgage term is generally 20 years for mortgages over 80% of the purchase price and 30 years for mortgages under 80%.

Frequency

Usually, fortnightly or monthly.

Interest only mortgages

An interest only mortgage can be ideal when you need a home loan but don’t want to pay off the principal (the original amount you borrowed) just yet. Interest only term can be for 5 or 10 years depending upon the lender. This option is only available to mortgages under 80% of the property value or purchase price.

Fixed (interest rate) Mortgage

With a fixed interest rate home loan, the interest rate you pay is fixed for a period of 1 to 5 years. At the end of the term, you can choose to re-fix again for a new term or move to a floating rate.

Advantages:

  • You know exactly how much each repayment will be over the term.
  • Lenders often compete with fixed rate specials.
  • You can lock in lower rates if market interest rates are rising.

Disadvantages:

  • Fixed rates often have limits on how much you can lift repayments or make lump sum payments without paying charges.
  • If you take a long term, there is a risk: floating rates may drop below your fixed rate.
  • If you choose to sell your property and/or break your fixed loan you may be charged ‘break fees’.

Capped Mortgage

In comparison with other options available, this is a very complex option. Capped mortgages are actually a type of variable rate, but with the difference that they have an interest rate cap where the interest rate can't rise, but will drop if floating rates drop.

Floating (variable interest rate) Mortgage

Lenders of floating rate loans will lift or lower the interest rate as interest rate in the wider market change, normally linked to the Official Cash Rate (OCR).

This means your repayments may go up or down.

Advantages:

  • You have greater flexibility to make changes without penalty, such as paying off the loan early or changing the loan term.
  • It’s easier to consolidate other costlier debt into floating rate loans by borrowing more.
  • Right now, floating rates are lower than most fixed rates.

Disadvantages:

  • Floating rates are usually higher than fixed rates, but things can change.
  • When rates go up the repayments also go up, putting a squeeze on your budget.

Revolving Credit

Revolving Credit is like an overdraft secured over your loan property. The idea is to help save on interest by keeping the daily balance of your loan as low as possible. Revolving Credit mortgage may work better for people with irregular income. It allows you to put your earnings into an account that you use to cover your expenses with direct debits and automatic payments. Interest is calculated daily on the ever-changing daily balance and averaged out at the end of a monthly or fortnightly period. The loan repayment calculated for that period is charged and paid from your account.

Advantages:

  • If you are really good at controlling your finances, you can repay your home loan sooner. If your income is irregular, a revolving credit mortgage may be best for you, because there are no fixed repayments, but your limit might reduce each month. You can help save on interest by putting spare money into this account instead of a saving account.

Disadvantages:

  • You need to have self-control. If you are borrowing up to your credit limit you’ll end up paying more interest on the full loan amount year after year.
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