Exploring your home loan options

With various home loan options available it can be challenging to know what is the right option for you when beginning your research. Understanding what key factors to consider when making your decision can help streamline the process.

Understanding home loan deposits

Your deposit is the amount you commit towards a property, not including costs such as stamp duty (and other Government fees) or Conveyancing costs.

Low deposit

Typically, a low deposit is defined as less than 20% of the property value. However, some lenders may accept lower deposits, even going as low as 5%. It is important to research and compare different lenders to find the best low deposit home loan option that suits your needs and financial situation. Qantas Money Home Loans accepts loans with as little as 10% deposit.

Strengths

Purchasing a property with a low deposit home loan may enable you to enter the property market sooner than you would with a higher deposit as you won't need to save up as much of a deposit.

Things to think about

When obtaining a low deposit home loan, lenders may require you to pay Lenders Mortgage Insurance (LMI), which is an additional cost added onto the loan amount. LMI does not protect you as the borrower, but is an insurance policy to protect the lender due to the lending being higher risk. Additionally, interest rates for low deposit home loans may be higher than those for standard deposit home loans. However, at Qantas Money Home Loans, you won't be charged a higher interest rate for low deposit lending.

After selecting a lender, the next step is to choose the type of interest rate that suits your financial goals and preferences.

Variable

When you opt for a variable interest rate on your home loan, you should be aware that the rate can fluctuate over the life of the loan. Variable interest rates typically go up or down in line with the lender's cost of providing the funds for your loan, this may be the result of the Reserve Bank changing the Official Cash Rate, or due to other funding factors. When your interest rate changes, this impacts the amount of interest expense of your loan, and will therefore impact your home loan repayments.

Strengths

The key benefit of this type of loan is that if the interest rate of your loan reduces, generally your minimum loan repayment commitment will also. Additionally, this type of loan generally will have features such as allowing you to make unlimited extra repayments without incurring penalties, as well as a redraw option. Many lenders will also give you the option of a 100% offset account on a variable loan, which can reduce the interest expense of your loan, depending on the amount of funds you have in offset over time. (Qantas Money Home Loans provides this feature on both fixed and variable rate loans). The flexibility of a variable-rate home loan can make it easier to make changes to your loan.

Things to think about

As your repayments may decline on a variable-rate loan, they can also increase when interest rates increase. This means that you need to be comfortable with the possibility of interest rates (and your loan repayments) increasing throughout the duration of your home loan.

Fixed

Fixed rate home loans offer you the option of locking in your interest rate for a defined period of time, generally one to five years. As the interest rate is fixed, your repayments are fixed and will stay the same over this period - reverting to a variable rate at the end of the period.

Strengths

The main advantage of a fixed rate home loan is that your repayments stay the same for the duration of the fixed term, even if interest rates increase. Opting for a fixed rate home loan will therefore provide you with a stable mortgage repayment for a set period of time which is beneficial for budgeting, managing your cash flow and alleviating ptential financial stress by planning your finances accurately.

Things to think about

If interest rates decrease, your interest rate won't which means you won't benefit from reduced repayments. And while fixed rate home loans offer stability, they may not provide as much flexibility as variable rate home loans. Typically, extra repayments are limited or capped, and if you decide to switch loans during the fixed period, you may have to pay a break cost fee, which can be expensive. It's important to note that break fees are calculated at the time of requesting a break of the fixed loan, so you should be confident that your circumstances won't change during the specified period of your fixed rate loan to avoid these fees.

However, with Qantas Money Home Loans, you can know what your repayments will be but also enjoy the flexibility to save on interest expense with the option to add an offset account** to your fixed rate loan.

With Qantas Money Home Loans, prepayments of the loan principal and use of the Offset Account, are subject to the Points Eligibility Policy.

Types of property loans

Owner Occupied

When you borrow for a property that you plan to live in - either as a new purchase or to refinance an existing loan - you can apply for an Owner Occupied home loan. This type of home loan is specifically designed for individuals who intend to occupy the property as their primary residence.

Investment

Investment loans are a type of loan you can get when you want to purchase a property and you don't intend to live in it (i.e. rent it out).

Owner occupied and Investor loans don't offer particular advantages or disadvantages over each other, rather their suitability is based on the type of borrower. Owner Occupiers and Investors may have different financial needs, and therefore may make different choices about the type of repayments they want to make (e.g. Investors may prefer an Interest Only loan, benefiting from lower repayments), and type of interest rate. If you are looking to invest in property, you should seek independent advice from an accredited financial advisor.

Types of repayment options

Principal and interest payments

Principal and interest is the most common type of home loan. This involves making repayments that both reduce the amount you borrowed (i.e, the "Principal") plus the interest that accrues on the principal.

Strengths

Making principal and interest payments on your home loan can help you to pay off your debt faster and increase the equity in your property. Additionally, paying back the principal amount you owe means you'll be charged less interest over the life of your loan.

Things to think about

Your monthly repayments will be higher than if you were to make interest only repayments.

Interest only repayments

Some people opt for an interest only loan period, which means only the interest accrued is paid, and none of the principal. Lenders will typically limit the amount of time that you can defer Principal repayments (usually 1-5 years), after which you will likely have to switch to a Principal and Interest repayment plan, or refinance to another lender.

Strengths

Opting for interest-only repayments can result in lower monthly repayments compared to principal and interest repayments during the interest only period. This is typically more attractive to investors than owner occupiers, and we recommend you to consult with your accountant or tax professional to understand the tax implications of owning a residential investment property.

Things to think about

If choosing an interest only loan, the principal of the loan will not reduce, which means at the end of the interest only period, your loan balance will be the same as the start of the interest only period. The term of the laon available to pay off your loan will be shorter at the end of the interest only period. This means your principal and interest repayments will be higher compared to if you had made principal and interest repayments during the entire loan term. You should consider the impact on your finances when interest only term ends and budget for a change in repayments.

* You have to be a Qantas Frequent Flyer member to apply with Qantas Money Home Loans. This information has been prepared without considering your objectives, financial situation or needs. You should consider your circumstances before acting on this information.

** Offset facility can only be linked to one loan at any one time. Linked offset facility must be in same customer name/number. This is general advice only. Consider PDS and TMD and your personal circumstances before you take out this product.