Principal and interest (P&I):
A P&I loan is structured so that you repay the mortgage, plus interest, over a set period of years. Principal represents the loan balance that is being repaid.
Interest-only:
These loans permit you to make “interest-only” payments over a certain number of years, after which they switch to P&I. Interest rates also often increase.
Variable interest rates:
This is where your interest rates fluctuate based on trends in the cash rate, which are set by the RBA.
Fixed interest rates:
This is where the rate of interest remains the same over a given number of years. After this period, the rate reverts to a variable.
This option grants you certainty and means you don’t pay more interest if the interest rate increases. However, by the same rationale, if interest rates decline, you will still be making repayments at the same rate of interest.
Partial fixed rate: If you want the best of both worlds, you can opt for part of your loan to be subject to a fixed rate, and the remainder subject to a variable rate.
Types of mortgage facilities
Offset account – An offset account is linked to your mortgage. Cash you put into this account is used to offset the loan balance payable for the purpose of calculating interest. The more you save in your offset account, the less you need to pay in interest.
Redraw – A redraw facility enables you to access any extra repayments made into the home loan.
