Home loans are often thought of as simple products. However, there are actually a range of different loan structures available, each with its own pros and cons. 

Whether you’re shopping for a new mortgage or looking to refinance, it’s important to understand the different loan structures available to you. The wrong loan structure can end up costing you thousands of dollars in interest and fees.

Let’s take a look at the different types of loan structures available in Australia.

1. Standard Variable Rate Home Loan

This is the most common type of home loan in Australia. Standard variable rate home loans have a variable interest rate, which means that your repayments can go up or down depending on market conditions. One of the main advantages of a standard variable rate home loan is that they usually offer more flexible repayment options than other types of home loans. For example, you may be able to make extra repayments without being charged a fee.

However, the downside is that you will be vulnerable to interest rate rises, which could increase your repayments significantly.

2. Fixed Rate Home Loan

As the name suggests, a fixed rate home loan has an interest rate that is fixed for a set period of time (usually between one and five years). This means that your repayments will stay the same for the duration of the fixed rate period, even if interest rates rise during this time. One of the main advantages of a fixed rate home loan is that it gives you certainty about your repayments for a set period of time. This can be helpful if you are on a tight budget and need to know exactly how much your repayments will be each month.

However, one downside is that you may end up paying more interest overall if rates fall during the fixed rate period and you don’t re-negotiate your loan.

3. Split Loan

A split loan is where part of your home loan has a fixed interest rate and part has a variable interest rate. This can be helpful if you want the security of knowing that at least part of your repayments will stay the same each month, even if interest rates rise. However, it’s important to remember that you will still be exposed to changes in interest rates on the portion of your loan with a variable interest rate.

4. Introductory Rate Home Loan

An introductory rate home loan typically has a lower interest rate for an initial period (usually six to twelve months) before reverting to a higher standard variable rate. This can be helpful if you want to keep your repayments low for an initial period while you get used to owning your own home. However, it’s important to remember that your repayments will eventually increase when the introductory period ends, so this type of loan may not be suitable if you’re on a tight budget.

5. Package Home Loan

A package home loan is where you bundle your home loan with other products and services from your lender, such as transaction accounts and credit cards . The advantages of this type term deposit rates as well as waive certain fees such as annual fees on your credit card . However , one downside is that package deals can sometimes be difficult to compare with other offers on the market , so it’s important to do your research before committing to one .

There are many factors to consider when choosing a loan structure for your mortgage.

It’s important to weigh the pros and cons of each type of loan before making a decision.

Credit Connection has nearly 20 years of experience helping Australians find the right home loan for their needs.

We’ll help you compare home loans from a number of lenders so that you can find the best deal for your situation.

With our help, you can ensure that you choose a loan structure that best suits your needs and helps save you money in the long run.

Contact us today to learn more about how we can help you save money on your mortgage!

How do humans approach complex, sometimes stressful and emotional financial decisions?

Behavioural Economics

Traditional financial theories are well constructed to make many calculated financial decisions. However, they have been unable to explain the seemingly irrational human disruptions in stock markets, stock market bubbles, market overreactions or under reactions and momentum and reversals against what would be considered objective evidence.

Behavioural Economics – A New Financial Frontier?

That’s exactly what behavioural economics – the study of psychology as it relates to the economic decision-making of individuals and institutions – seeks to answer.

We know that humans are emotional beings. These emotions are capable of influencing the decisions we make in our financial lives – often in unexpected ways.

Behavioural economics draws on insights from the fields of psychology and economics to explore why people make irrational decisions, and why behaviour does not follow predictions of ‘rational’ economic models. As humans are emotional and easily distracted beings, they make decisions that are not necessarily in their self-interest… which also shows a lack of self-control.

Professor Richard Thaler, the Nobel Memorial prize winner in Economic Sciences from the University of Chicago, inspired the creation of the term called ‘nudge units.’ This is the notion that there are many opportunities to ‘nudge’ people’s behaviour by making subtle changes to the context in which they make decisions.

Where Have We Seen ‘Nudging’ In Action?

An example of behavioural economics is an old policy McDonald’s runs, where customers are asked if they would like to super-size their order. As it turns out, they do, more often than not.

The Australia Institute – a public policy think tank – has examined how Australians approach financial decisions. Their research found that one of the major causes of financial stress was overconfidence. The study shows again and again that when asked to rate their relative ability in relation to financial decision-making, far more people believe they are above average, both in knowledge and behaviour.

However, the study also shows that only 6% of people with mortgages entirely stick to a budget.

Have you ever made a budget, stuck to it for a few weeks, only to run off course?
Behavioural finance may soon be able to get to the heart of just why that happens.

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