Buying a home
What are the different types of home loans available?
10 October 2017
There's a few big decisions you'll have to make when buying a house. Which suburb is right for you? How many rooms do you need? Should you hire movers or try to do the job yourself? (Definitely hire movers. Your back will thank you). But one of the most important decisions is what type of home loan you'll apply for. It can be a little confusing—should you choose a fixed or variable interest rate? What features are right for you? Should you split your loan?
Choosing a loan isn't like picking curtains, or deciding which chiropractor to see after you try to move all your furniture yourself; it's not so easy to change your mind after the decision has been made.
But Suncorp Bank can help. We offer several different loans, along with the expert advice you need to make the right choice.
Fixed or variable rate?
A loan with a fixed rate means that you'll be paying a set interest rate for an agreed-upon period, usually between 1 and 5 years. This has a couple of key benefits:
- You know exactly how much your repayments will be, allowing you to budget accordingly.
- You are protected from any potential rise in interest rates.
But there are some risks that you'll want to consider:
- You could miss out on enjoying lower repayments if the interest rate were to fall during your fixed rate period.
- You could be subject to extra fees if you want to exit or refinance your loan during the fixed period.
- You're limited in how many additional repayments you can make without incurring extra costs.
A loan with a variable rate means that you don't agree to a pay a set interest rate, so your rate could rise or fall throughout the loan period. This has a few benefits:
- If interest rates fall, your repayments will be lower.
- You could make additional payments to your loan without penalty.
- You may able to take advantage of an offset account.
However, there are some potential drawbacks:
- If interest rates increase, so will your repayments.
- The uncertainty around repayment amounts can make it more difficult to budget.
Splitting your home loan
If you want to give yourself some protection against potential interest rate rises but also take advantage of a variable rate's flexibility, you can consider splitting your home loan. This would
involve taking out two separate loans, one fixed and one variable, each of them for a portion of your home's total loan amount.
Say, for example, you're buying a house for $600,000 with a deposit of $120,000 (20% of purchase price). You might get a 3-year Fixed Rate Loan for $300,000, meaning that your repayments for that portion of the purchase price will remain constant for 3 years. Meanwhile, you could take out a Standard Variable Loan for the remaining $180,000.
Approaching it this way would mean that you have a bit of payment certainty, as your repayments on the $300,000 wouldn't vary for 3 years. You'd also see some benefit from any fall in interest rates, as your repayments for the $180,000 loan would drop. But, in the event of an interest rate rise, while your repayments for the smaller loan would increase your repayments for the $300,000 would remain steady.
Our home loan products
Suncorp Bank offers a range of different home loans, offering both fixed and variable rates.
Standard Variable Rate Home Loan
Our Suncorp Bank Standard Variable Rate Home Loan is designed for borrowers who want the flexibility of a variable rate, and would like to take advantage of features like an offset loan or cashback facility.
For example, you might be borrowing $400,000 to purchase a home. If you have $10,000 in a Suncorp Everyday Options account in offset mode, this amount would be subtracted from the $400,000, and subsequent remaining loan amounts, when calculating your interest. As a result, in your first repayment you'll only pay interest on $390,000 (the initial $400,000 minus your saved $10,000).
Meanwhile, if you've made extra payments into your loan—say, an extra $1,200 by paying an additional $100 a month over the course of a year—that money is available to be redrawn, subject to having an approved redraw request, using the cashback facility. And before you redraw it, that money has been keeping your interest repayments down by lowering the amount left owing on your loan.
Back to Basics Home Loan
Our Suncorp Bank Back to Basics Home Loan offers a low variable rate with no account keeping fees, but without the option of an offset account. It's a great option for borrowers looking to keep costs down and who don't need an offset—for example, first home buyers who are early in the loan repayment process and may have already used their savings towards a deposit.
Fixed Rate Home Loan
If you're a creature of habit, our Suncorp Bank Fixed Rate Home Loan offers consistent repayment amounts over 1, 2, 3 or 5 years. This is ideal for borrowers who want financial certainty, and the ability to plan their spending around predictable repayments.
At the end of the fixed rate period, you can re-fix your loan for another period, or switch to another loan option, subject to our acceptance. If you take no action, the interest rate will automatically convert to the standard variable rate.
So, which product is right for me?
Ultimately, there is no "best" home loan option. The loan that you choose should be the one that best addresses your needs. If you'd like to discuss your options further, you can enquire online or book an appointment with a Suncorp Bank Mobile Lender—they'll visit you face-to-face at a time and place of your choosing.
The information is intended to be of a general nature only. We do not accept any legal responsibility for any loss incurred as a result of reliance upon it – please make your own enquiries.
Any advice contained in this document has been prepared without taking into account your particular objectives, financial situation or needs. For that reason, before acting on the advice, you should consider the appropriateness of the advice having regard to your own objectives, financial situation and needs. Where the advice relates to the acquisition, or possible acquisition, of a particular financial product, you should consider the Product Disclosure Statement before making any decision regarding the product. Contact us for a copy.