Home loans can vary greatly when it comes to conditions, features, repayments, and security. Similarly, potential borrowers also vary greatly in where they’re at in their life, and their personal circumstances. It can sometimes be hard to choose the right home loan for your lifestyle, so we’ve put together an explainer on what sort of home loan may be right for you.
Types of buyers
While we’re all unique, most borrowers will fall into one of the four following types of home buyers:
1. Solo buyers
Solo buyers are typically single young professionals, who lead a busy life, through both their work and social life. They like to be close to the CBD so they can be close to cafes, restaurants, bars, and their work. Proximity to entertainment and sporting facilities is also a big drawcard for this group. Taking all of this into account, solo buyers often look for a property with a communal feel, like an inner-city apartment or townhouse, which don’t require much maintenance. They won’t typically look for a one-bedroom apartment, as this would usually prevent them from having a pet, and would stop them from having a spare bedroom or study they could rent out.
2. Young couples
Young couples are usually focussed on a house which they can see themselves living in for ten or more years and might be prepared to do some work on the house. The house is likely to have at least three bedrooms, to allow for the expansion of their family, and will need to be close to schools, shops, parks, and public transport.
Families will already have kids, who are perhaps now young adults, and will more than likely be looking for a four-bedroom, two-bathroom house to accommodate for them all. Teenagers often want a separate space, away from their parents. The house will need to have large living spaces and a garden, as well as a garage or extra vehicle space. Families will also still require proximity to schools, shops, parks, and public transport, and maybe a nearby university.
Downsizers are couples who have seen their children leave the nest and no longer need a four-bedroom home. They’ll be looking to find a two-bedroom home, so they can still have a spare bedroom for guests. They may want to live in a community of people around the same age who are like-minded. An easy to maintain home is a must, which still has some space for hobbies like gardening.
Types of loans
Different types of loans may appeal to different types of buyers. These types of loans include:
1. Fixed loans
Fixed loans offer security to borrowers, as your repayments and interest rate are locked in for a period of time, typically one to five years. This security is great for people who may be getting a loan for the first time, as the switch from rental payments to home loan repayments can be tough. Fixed loans often appeal to young couples due to their security.
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2. Variable loans
Variable loans mean your interest rate is subject to change over the life of the loan, often in line with the Reserve Banks’ cash rate changes. Variable loans typically allow you to make payments greater than the minimum required, make extra repayments, or make your repayments weekly, fortnightly, or monthly. This flexibility makes variable loans attractive to most types of buyers.
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3. Split loans
A split home loan allows you to split your home loan balance and have one amount charged at a variable rate and the other at a fixed rate. You can split the amounts however you like, be the 50:50, 60:40, etc. Splitting your home loan means you can take advantage of the benefits of both types of rates. Having more of your loan as a variable-rate means you could potentially reap the rewards of falling interest rates while fixing a greater portion of the loan could be more beneficial if interest rates were to rise. Split loans allow you to get the best of both worlds, and often appeal to solo buyers whose circumstances can quickly change, as well as families who need the flexibility.
4. Loans with an offset account
An offset account is a transaction account linked to your home loan and essentially functions as any other normal transaction account would by allowing the withdrawal and depositing funds. The key difference is the money in an offset account is ‘offset’ against your home loan debt when interest is calculated, reducing the amount of interest charged on your home loan. Offsets are popular amongst most buyer groups as they can greatly reduce paid over the life of the loan.
Use our mortgage calculator to work out your repayments and plan your life ahead and download a free property report to find out if the home and location suit your needs and lifestyle.
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