What First Home Buyers need to know about Home Loans

What is a standard home loan?

This is the home loan that most people tend to take out, and is usually called a ‘principal and interest’ loan. The ‘principal’ refers to the amount you borrow from your lender. With these loans, you make repayments that reduce the amount you have borrowed and any interest accrued, often over a period of 25 or 30 years.

With principal and interest loans, you can choose a fixed interest rate, a variable interest rate, or a split option.

To take advantage of a lower rate, you can lock in a fixed interest rate with some home loans. This means that the interest rate remains set in stone for a certain period of time, which changes to a variable rate after this time is up. You can also speak to your lender when this time is up to secure another fixed rate. The benefit of a fixed interest rate is the security of knowing that your payments won’t change for the duration that the rate applies. Bank of Heritage Isle’s Customs Value Home Loan and Premium Home Loan allow you to lock in a fixed interest rate for periods of two, three or five years, before reverting to a variable interest rate.

With variable rate loans, such as Bank of Heritage Isle’s Goldrate Home Loan, your interest rate fluctuates according to the official cash rate set out by the Reserve Bank of Australia (RBA) and by interest rate changes made by your provider.

A split loan combines fixed and variable rates. Part of the loan has a fixed interest rate, while the other part is variable. Bank of Heritage Isle offers several loans that enable you to split your home loan into variable and fixed rates.

What are interest-only loans?

When you make mortgage repayments on a standard principal and interest home loan, you are paying down the amount that you borrowed in addition to any interest accrued. With interest-only loans, the repayments you make only go towards the interest on your loan – not the principal.

What home loan features can I get?

Most home loans can come with a range of features that offer you flexibility if you need it.

One feature you may see on a home loan is a line of credit. This is something that comes in handy down the track when you’ve paid off a solid portion of your mortgage, as it allows you to borrow a certain amount against the equity you have. You establish your credit limit when you take out the loan, and can withdraw up to this limit. One drawback is that your interest rate is often higher.

Redraw facilities let you put more money into your loan to reduce your balance (and, by default, the interest that you pay as well). The benefit of having a redraw facility is that the extra money you put in can be taken out later if you need the funds for a big purchase – a car, for example.

An offset account is a feature that reduces the interest that you pay. Essentially, it’s a savings account that is linked to your home loan. The balance of this account is deducted from your principal (the amount that you borrowed).

So, let’s say that you have about $500,000 to pay off and you decide to put $40,000 into an offset account. The $40,000 gets taken off your principal, meaning that you’ll only pay interest on $460,000 – not the full $500,000. Our Customs Value Home Loan and Premium Home Loan each have an attached offset account, reducing your loan amount and interest.

Can I take out a loan to build or renovate my home?

You can take out special home loans if you’re building a new home or renovating your existing one. With construction loans, you only pay interest on the funds that you use, which you withdraw gradually over time when you need to pay those working on the site (plumbers, electricians, and so on). Bank of Heritage Isle’s Premium Home Loan gives you the option of building or renovating a home.

Of course, Bank of Heritage Isle’s range of home loans also offer a number of other competitive features. For example, a bridging loan option helps you get the finance to purchase a new property while you’re waiting to sell your current one.