Negotiating various terms of a loan including rates and repayment options can be complicated. We recommend discussing with a broker so that you are equipped with all the information before making a decision. Here’s a brief breakdown of the options you will come across:
Principal and Interest loans
You pay interest and also repay part of the amount borrowed (principal) at the same time. Your loan will come with a specified term in which is to be paid.
Pros:
- Higher borrowing power
- Reduced interest rates
- Potential to pay off the mortgage faster
- More flexibility to refinance
Interest-only loans
You pay only the interest for some or all of the term, with principal balance unchanged during the interest-only period.
Pros:
- Maximise cash flow with an investment property
- Leverage funds for a business investment
- Covering temporary shortfall in income
- Retirement planning
Fixed interest rate
A fixed interest rate loan is where the interest charged on your loan will remain fixed for a certain number of years, depending on how long you fix for.
Pros:
- Provides certainty
- Ability to plan ahead and stick to an accurate budget
- Works to your advantage if you are locking in a low interest rate
Variable interest rate
Pros:
- More flexibility and freedom
- Opportunity to reduce loan balance, allowing you to save substantial amounts of money over the loan term
- If interest rates go down, so will the amount of interest you are charged with monthly
If you have any questions, we’re happy to have a non-obligatory chat with you. Feel free to give us a call or fill in the form here and we will organise a time to call when suits you.
