Which repayment is suitable for me?
Generally, there are have two types of repayments: Interest Only and Principal Plus Interest. Interest Only can reduce the repayment pressure in the short term, maximising cash flows; Principal Plus Interest will help pay off your loan as soon as possible. Choosing the repayment way depends on your needs.
Fixed rate or variable rate?
• The interest rate p.a. of a loan is unique to different lenders, loan products, and loan types. Variable rate and fixed rate are two main categories. Usually the interest rate on home loans will be lower than interest rate on investment mortgage
• Fixed home loans interest rate is fixed for a period of the time, usually 1, 3 or 5 years. Market changes on interest rates does not affect fixed rate hence results in the same repayment amount during the period. At the end of the fixed rate term, the loan will usually switch to the standard variable rate offered by the lender.
• Choosing between fixed rate or variable rate depends on the amortization period of a loan. The longer the period, the greater the impact a change in interest rates will have on repayments.
Redraw vs Offset?
• Redraw: when the actual amount of loan repayment is higher than required amount, you can borrow the extra money from lenders
• By depositing money in an offset account, it will be offset against your mortgage and interest only charged on the difference The more you have in your offset account, the less you owe in interest.
• Both redraw facilities and offset accounts can help pay off your mortgage faster.
Should I get a package loan?
• Package loan combines your loan and other financial products into one bundle. Benefits can be realised such as no fee or fee deduction for an offset account and credit card, discounts on insurance.
• In return, lenders usually charge you one annual fee of around $300/year to $400/year that covers it all instead of paying separate account-keeping fees or insurance premiums on each financial product.