By looking around and comparing the home loans available from various institutions, it is easy to immediately spot that they are not all exactly the same. With the large variety on offer, you may notice that the difference comes in the small details. These differences may seem small, but over a long period of time they can add up to a large amount.

It is what you intend to use your property for that will have one of the biggest influences on your choice of loan. 

There are generally two major kinds of loans available to a property buyer. One type of property loan that people will apply for is an owner-occupier home loan, which is a loan that is used to purchase a property that the loanee intends to live in as their main residence. The other is an investment home loan. As the name suggests, those who take out this sort of home loan do so with the intent to buy a property and use as a means to gain additional income.

Home loan rates

When looking at a home loan, whether investor or owner-occupier, it is vital to examine the rates that are applied to them carefully. The rates applied have a large influence on the amount of your repayments and can make a big difference in the amount of money you can save over time.

One of the biggest differences between investment and owner-occupier home loans is the rates that are applied to them. When applying for an investment loan, in most cases, you will be subject to a higher rate than if you were taking out a loan to buy your own home.

This is partially due to regulation by the Australian Prudential Regulation Authority, the independent statutory authority that supervises institutions across banking, insurance and superannuation. 

Home loan features

As well as different rates, investment and owner-occupier home loans can also have different features that will influence the amount that is paid back over the life of the loan.

These features can centre around the lender that is borrowed from, the repayment method or whether it is fixed or variable. A variable rate home loan is where the interest rate that is applied to your loan can change and is influenced by a number of factors. One of the main factors that can influence a change in the interest rate is the Reserve Bank’s official cash rate. There are many other factors that will influence the way that interest rates change.

Like any loan, a variable rate will have positives and negatives. They often will allow for extra repayments to be made and can have features that will save you money like offset accounts and the ability to borrow money you've already repaid, known as a redraw facility.

A negative of variable rate home loans is that if interest rates rise, so will your mortgage repayments. A fixed rate home loan is a home loan where the interest rate is locked in for a set period of time. This is usually between one and five years. It is a popular loan type because the repayments that are being made don’t change over the period that they are fixed. 

However, they don’t often come with the flexible benefits and added features that a variable rate can. Also, if interest rates do fall then you will be stuck with a less competitive home loan.

Repayments on a home loan will usually be principal and interest or interest-only. A principal and interest repayment will see a loanee make their mortgage payment with a portion of every repayment allocated to the interest while the other portion is devoted toward the principal, or the initial sum being borrowed.

An interest-only repayment loan will see only the interest charges on the home are being repaid. With this method of repayment, the amount that is owed isn’t reduced, however, the size of your monthly repayment is. 

Home loan fees

It doesn’t matter what lender you choose to take a loan with, whether you are an investor or owner-occupier there will always be fees attached to the home loan process.

It is important to check the fees that will be applied to any loan you are looking at so you can determine exactly how you will be paying.

Different providers will also charge different fees and it is possible that these providers will have different names for the same fees.

Some fees often included are:

• establishment fees
• service or administration fees
• early exit fees
• refinancing fees
• termination or settlement fees.

You may also be charged lender’s mortgage insurance (LMI). This is a type of insurance that credit providers take out to guard against a borrower not being able to repay the loan they have taken out.

A big cost to you

One of the most frustrating costs to you, the consumer, is the time cost of applying for and even researching a loan to buy property. In many cases, it can take between four and six weeks from the moment your paperwork is submitted to your application achieving settlement on your property.  

While this can be an annoyance, it is unfortunately a big part of securing a home loan.

Disclaimer: The information in this publication and the links to further information within it are provided for general information only and should not be taken as constituting professional advice from Little Real Estate. You should not rely on the accuracy of this information and should seek independent legal, financial, taxation or other advice to check how any of this information relates to your unique circumstances. Little Real Estate is not liable for any loss caused, whether due to negligence or otherwise arising from the use of, or reliance on, the information provided directly or indirectly, or from our website.