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First World Problems – What you need to know when there are too many mortgages available to you.
Mortgages come in all shapes and sizes. Big ones, small ones; fixed ones, variable ones, 30 year ones, 10 year ones. So when push comes to shove; how do you know which hat to put on?
Well we hope to help.
There are of course plenty of ways you can get yourself assistance in Brisbane, finding home loans and getting advice from experts like Pat Cranshaw at North Brisbane Home Loans. In the end you do have to accept that unless you’re in the finance game. This stuff can get complicated, quick.
The Two Big Players – Fixed rate or Variable rate mortgages
These are the two most common mortgage options and are basically available to anyone that qualifies for a mortgage. They fit different lifestyles, work arrangements and financial situations so it depends whether you go for fixed or variable rates, you need to understand what it is your getting.
With a variable rate mortgage, the interest rate changes month to month based on the Reserve Bank of Australia’s current cash rates. As economies grow typically cash rates rise as people can “afford” to pay more of their loans back. As economies shrink, cash rates fall as people and businesses no longer have the ability to pay back loans so quickly.
This type of loan is very flexible, typically allowing refinancing after certain lengths of time. If you come into a windfall of cash, then you can also pay off lump sums at a time.
Variable Rate mortgages typically work out at about 1% cheaper then fixed rate mortgages but they do of course depend on the economy and Australia’s financial performance.
Fixed rate mortgages have interest rates that remain the same through a fixed term of the loan. This is typically 5 years, when the state of the cash rates and repayments is re-assessed and you go into another fixed term or change to a variable rate. This can be handy if you think the economy is on the up and that cash rates could very well rise, therefore meaning a variable rate may cost you more.
Fixed rate mortgages allow you to lock in to a set repayment every month. This can be handy if you want to make sure costs and liabilities remain the same over time. The Frankenstein mortgage or the Split Loan allows borrowers to build a combination of both. Fixing part of the mortgage for a period of time to one repayment. While being variable rate for another part of it.
Typically, Australians choose 1 of these types of loans. They are the most common and most well known of all mortgage types. However, there are other options that can be more useful to particular persons, depending on their situation. If you already own a house or have a mortgage on a property of which you have a large amount of equity. You may be eligible for a loan based on that equity.
i.e. if you have a house worth $1million and you have paid off 600k with 60% equity in the home, you are most probably eligible to use that 600k for another property loan.
This is leveraging the value of the property you have in your favour and plenty of Australians use this method to purchase multiple investment properties. In Australia this carries attractive tax benefits; in order to assist Aussies retaining the majority of the property so it isn’t bought up by foreign land owners.
There are more options to explore but my recommendation would be to get in touch with an expert if you’re inexperienced or need advice.