These days there are so many different lending products on the market that it is hard sometimes to work out which loan offers the best solution to your own financial situation.

While the interest rate is the first feature most people look for, there are many other things to consider before committing yourself to a loan. The best loan is not necessarily the cheapest rate, as with many other products, nor is it the one with the most features. Often a low rate means inflexibility of loan terms which may cost you more in the long run if you want to change the way you pay it back. On the other hand, why pay for features you are confident you will never need?


Variable loans are the most commonly utilised loans. Variable means the interest rate is not locked in and is likely to vary when official interest rates change. Most banks offer several variable products. The more features offered by a loan, the more the interest rate and fees. Features include, for example, a mortgage offset facility and a re-draw facility, which is useful as long as you are disciplined enough not to keep drawing the money out to use for lifestyle purposes.


Fixed interest loans offers, as the name suggests, fixed interest rates on your mortgage for a specified time. This is useful in times of rising interest rates as the schedule of re-payment is set in advance and borrowers can budget more easily because their costs are fixed and predictable. However, it is worth noting that fixed interest rates are usually higher than variable ones to protect lenders from losses as a result of fluctuations and they have an early termination penalty as well.


Split loans or combination loans allow borrowers to have a portion of their loan as a variable loan and the balance as a fixed interest loan. This means that no matter what happens to interest rates, they are protected from the full force of the lending conditions becoming less favourable to their choice.


Introductory rate loans have a honeymoon period where the rates are initially lower, however the rates go up at the end of the honeymoon period. It is important to weigh up the long-term costs, the term of the loan is likely to be 25 or 30 years so any savings are likely to be absorbed, against the short term benefit. It works well for those who are expecting to have more money as time goes on, or if property prices are rapidly rising and it is the only way you can afford to get your foot in the door. Re-financing introductory rate loans can be expensive and early termination of loan may incur penalties.


Interest only loans enable borrowers to repay the interest only for a designated number of years of the loan term, and are often attractive to investors.

For recommendations on who to best help you with your finance needs please contact Lyn Clisdell from our team on 9524 0777 or click here to email