Choosing the right home loan
You’ve found the property you want and the only thing standing between you and your home is the actual buying process. Here is some information to help bring you home.
At Westpac, we understand that one size does not fit all. That’s why we’ve created a wide range of Home Loans offering you flexibility, certainty and peace of mind. An important factor to consider when choosing a home loan is whether to opt for variable or fixed interest rate loan. There’s also a third option to put into the mix – opting to go with both with a split or combination loan.
- Flexibility: Variable interest rate home loans
With most variable rate loans, you can make unlimited extra repayments, thereby letting you own your home sooner and reducing the amount of interest payable. With a variable rate loan, the interest rate changes due to market changes. If the interest rates go up, your regular interest repayment could rise, alternatively, if interest rates fall, your regular interest repayment could go down.
- Certainty: Fixed interest rate home loans
With a fixed rate loan, you’ll have the certainty of knowing exactly what your repayments will be each month. That’s because the interest rate is fixed for a set amount of time – generally between one and five years. No matter if the market interest rates rise or fall, your repayments will still stay the same but you will be limited by how much extra you can repay during the fixed term. When the fixed period is over, you can either fix the loan again for a set period or let it automatically revert to the variable interest rate.
- Best of both worlds: Part variable/part fixed home loans (also known as a split or combination loan)
You can try and achieve a balance by splitting your loan into part fixed and part variable components and get the combined benefits of both. You’ll have the certainty of knowing what your repayments will be on the fixed portion while still having the potential to benefit from lower repayments should interest rates fall via the variable portion. Click here to read more on combination loans.
Read more about the features of the Different types of loans
Types of Home Loan Repayments – choosing what suits you
When choosing a home loan, it’s important to also understand the loan repayment options and how they impact you. You’ll need to consider ‘principal and interest’ repayments or ‘interest only’ repayments and what may work best for your situation.
- Principal and interest repayments: Here each repayment goes towards paying off both the amount borrowed to buy the property (the ‘principal’) as well as the interest accrued. By the end of the loan term, both the amount borrowed and the total amount of interest accrued will be repaid. Most home loans with principal and interest repayments have a lower interest rate, so the amount you can save in interest could be significant.
- Interest only repayments: Here your repayments only cover the interest accruing on the loan, so none of the principal will be paid off during the interest only period. This type of repayment generally has a set Interest Only term between 1 – 10 years, and at the end of this term, the loan will switch to principal and interest repayments. The repayments may be lower during the interest only period, but will usually be higher once you revert to paying principal and interest as you now have less time to pay off the principal of the loan.
See Home Loan repayment types for more details.
See our Home Loans Comparison page for our full range of loan options. If you find yourself wondering which one is best suited to you, don’t hesitate to speak to our Home Finance Managers.
Things you should know
Credit criteria, fees, charges, terms and conditions apply. This information has been prepared without taking your objectives, needs and overall financial situation into account. For this reason, you should consider the appropriateness of the information and, if necessary, seek appropriate professional advice.