There are a range of home loans available in Australia, so it can be hard to understand their
features and whether they are right for you. This guide explains all you need to know.
Variable loans are loans that are subject to interest rate fluctuations. Whenever your bank
increases or decreases interest rates, you will end up either paying more or less for your loan,
depending on what the bank has decided to do.
A typical owner-occupied mortgage is taken out over 25 or 30 years, although you can reduce the
overall term by making higher or more frequent payments. Mortgages are either based on principal
(the amount you borrowed from the bank) and interest (the amount you pay back for having
borrowed that money) loan repayments, or interest-only repayments (generally available for 1-5
years for owner occupied loans and 1-10 years for investment loans) where none of the principal
component of the loan is paid down.
Fixed loans allow you to lock in a specific interest rate over a set period of time, generally between
one and five years. This loan is popular among borrowers who want to ensure their repayments
don’t rise. The main risk is that if variable rates fall, you are locked in at a higher rate. The cost of
breaking a fixed rate loan contract can be substantial, and there can be financial penalties for
making additional payments.