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New Home or New Cairns Loan?
When you’re looking for a new home, you presumably have a good idea of what you ’re looking for – what it looks like, what size it is, indeed where it’s located, perhaps right down to the road.
But when it comes to a loan, where do you start? There are hundreds of loans from a huge choice of Cairns and Queensland lenders. And there are new products coming into the market all the time.
As a leading mortgage broker in North Queensland, our job is to help you find one loan out of the hundreds available that suits your individual requirements. What’s more, we’ll help manage the whole process for you. We ’ll help you with the paperwork, and manage the operation process right through.
Of course, with all loan products there are pros and cons, so it’s a good idea to get familiar with the different loan types. Here is a quick look at the main types of Cairns loans and some of their advantages and disadvantages.
Variable
Standard variable loans are the most popular home loan in Australia. Interest rates go over or down over the life of the loan depending on the sanctioned rate set by the Reserve Bank of Australia and backing costs as well as the individual opinions of each lender. Your regular disbursements generally pay off the interest as well as a portion of the principal.
You may also be suitable to choose a introductory variable loan, which offers a reduced interest rate but has less loan features.
Pros
The required minimum repayment will decrease if interest rates fall.
Additional payments are permitted – keep this in mind as even a small regular additional repayment can reduce the duration of your loan life (plus save you money on interest!).
Basic variable loans frequently don’t come with a redraw option.
Cons
The required minimum repayment will increase if interest rates increase.
If you have not calculated the impact of any rate rises into your budget then it has the potential to impact your lifestyle – make sure that possible interest rate increases are accounted for when determining the amount you can comfortably
borrow.
Using the redraw option on a standard variable loan can increase the duration of the loan.
Fixed
The interest rate is fixed for a certain period, most lenders offer from one to five years fixed and the interest rate varies depending on the period that you choose. Choosing this Cairns loans option means that your minimum repayments remain the same in the event of a decrease or increase in the interest rate. After the fixed period you will have the option to select a new fixed period or switch onto a variable home loan.
Pros
You won’t be affected by changes in the interest rates.
You can budget for the duration of the fixed period with certainty as you will know the exact amount that is due to be paid.
Cons
The interest rate is fixed for the duration meaning that if there is a decrease in interest rates, your minimum repayment will stay at that rate for the duration of the loan.
If the rates remain higher for your fixed period than the current interest rate then you will pay more than someone on a variable loan.
The options to make extra repayments whilst on a fixed loan are limited.
Exiting the loan during the fixed period can result in significantly higher break costs.
Split Rate Loans
The best of both worlds – you select a portion to be fixed and a portion to be variable. Some people decide on this type of Cairns loan as you can have the security of a fixed interest rate and at the same time enjoy the flexibility of a a variable loan.
Pros
The minimum repayment amount of the loan will increase/decrease less making it easier to control your finances.
The minimum repayment amount will decrease on the variable part of the loan if interest rates decrease.
You can fast track your repayments on the variable portion of the loan and repay it quicker.
Cons
The minimum repayment amount will increase on the variable portion of the loan if there is an increase in interest rates.
There are limitations to the amount of additional repayments you can make towards the fixed portion of the loan.
Exiting the fixed portion of the loan early can result in significantly higher break costs.
Interest Only
Generally for the first one to five years the repayments that you make go towards the interest only. This is calculated by the amount borrowed. By only paying the interest on a loan and not paying towards the principal it will reduce the minimum repayments due. After the initial interest only period then repayments are made to both the interest and the principal.
Investors often lean towards these loans as they rely on the capital growth of the property which they then use to pay off the principal when they sell.
Pros
The minimum repayment is low during the interest only period.
Having a interest only period may offer the opportunity to redraw or make additional payments towards the principal.
Cons
Over the life of the loan you will have paid a higher amount.
By paying off the interest only it will not reduce the amount owing on the loan.
Once the interest only period of the loan is finalised your repayments will increase significantly.
Line of Credit
Want the flexibility of being able to access your funds? A line of credit loan offers you the option of paying/withdrawing from your loan account providing that you meet the minimum required payments.
By choosing to have your wages deposited directly into your home loan account it can offset the interest charged and at the same time offer you the flexibility to access your available funds.
Pros
Pay off your mortgage faster.
Reduce your needs for other bank accounts by having all transactions and funds in one.
Access your funds when you need to.
Cons
By accessing the funds constantly you may not be paying off the principal. Which will extend the life of the loan and possibly increase the amount owed.
Having a higher interest rate means that the cost of the loan during it’s lifetime will be higher than one with a standard variable mortgage.
Introductory/Honeymoon
Lenders offer introductory loans at a reduced interest rate to new customers and first home owners. The duration of the discount is usually for a six to twelve month period. Once the introductory period is over, the loan rate will usually change to the current variable interest rate of that lender.
Pros
You benefit from the ‘honeymoon’ period by making minimum repayments at a lower interest rate.
Cons
These loans often come with restrictions for the life span of the loan. Once the initial honeymoon period of the loan is over, you may find that the variable interest rate on offer is higher than other lenders. If you do decide to switch lenders then you may be liable for an early exiting fee.
Low Doc
These loans require less documentation such as proof of income than other Cairns loans. A low doc loan is a popular loan with those who are self employed. Due to the increased risk of the lender, a higher deposit is required and the loan itself may have a higher interest rate. It would be beneficial financially to be able to provide full documentation for other loans. You would be able to have a lower interest rate and the amount for the deposit could be lower. In some cases where this is not possible then doing further research on this type of loan may be the best option for you.
Pros
Proof of income documentation required is lower than that of other loans.
Cons
This type of loan could cost you much more in the long term by combining higher interest rates with a larger deposit amount.
Looking for a Cairns mortgage specialist?
JGM Lending & Finance are here to find the right loan that is right for you. Speak to us today or send an enquiry and our Cairns mortgage brokers will be in touch.